Analysis: Cruz’s tax plan would raise taxes on poorest

Republican presidential candidate Ted Cruz’s tax plan would lower federal revenue and eventually increase taxes for taxpayers with the lowest incomes, according to an analysis released Tuesday. 

{mosads}The Texas senator’s plan would reduce federal revenue by $8.6 trillion in its first 10 years and an additional $12.2 trillion in the following decade, according to a report from the non-partisan Urban-Brookings Tax Policy Center (TPC). Those estimates do not take into account additional interest costs or macroeconomic effects.

Cruz’s plan would repeal the corporate income, payroll, estate and gift taxes. He would replace the current individual tax rates with a flat rate of 10 percent and repeal most itemized deductions and credits while increasing the standard deduction amounts. Additionally, he would impose a 16-percent “business flat tax” that is a type of a consumption-based value-added tax (VAT).

“This plan is a major tax reform,” TPC Director Len Burman told reporters. He added that the plan would be simpler than current tax law, but would also be “very regressive.”

Most of the revenue loss from Cruz’s plan would come from repealing payroll taxes and the corporate income tax and reducing individual income taxes. The income raised from the VAT would offset 70 percent of the cost of the tax cuts, TPC said.

People at every income level would see tax cuts in 2017, though high-income taxpayers would see the largest cuts, according to the analysis. The top 0.1 percent of taxpayers would see an average tax cut of nearly 29 percent of after-tax income, while those in the lowest quintile of income would get an average tax cut of 0.4 percent of after-tax income.

Tax cuts would be smaller in 2025 for people at most income levels, and the poorest taxpayers would actually see a tax increase. This is because temporary revenue losses related to the elimination of the corporate income tax will decline over time, TPC said.

Those in the bottom quintile would have their after-tax income lowered by 0.6 percent, while the top 0.1 percent of taxpayers would on average have their after-tax income increase by 23 percent. TPC Senior Research Associate Joseph Rosenberg said the bottom fifth of taxpayers would see tax increases because the VAT could be viewed as a 16-percent tax on wages and the VAT is higher than the current payroll taxes.

TPC estimates that Cruz’s plan would cost more than the tax plans of fellow GOP presidential candidates Jeb Bush and Marco Rubio, but would cost less than the tax plan from Donald Trump.

Update: TPC said March 3 that it has updated its analysis of Cruz’s tax plan to take into account Cruz’s intention to expand the Earned Income Tax Credit. Under the adjusted estmate, Cruz’s tax plan would cost $8.75 trillion in the first 10 years. In 2025, those in the bottom quintile of income would have their after-tax incomes increase on average by 0.3 percent, though people making less than $10,000 on average would have their after-tax incomes decrease by 1.7 percent.