Economy, Regs, & Taxes

Cruz vs. Rubio on Taxes

Two of the leading GOP candidates tackle reform.

Robin Smith · Jan. 19, 2016

A policy debate is brewing between two of the top Republican contenders for the party’s presidential nomination — Senators Marco Rubio and Ted Cruz. Unlike Hillary Clinton and her fellow socialist line-up, voters on the Right are witnessing a vigorous debate over policy that would benefit our nation. The two Republicans have placed their tax reform plans out for review and analysis.

The plans are quite different, though both aim to reform the entangled and excessive current tax code and regulations that compile more than 70,000 pages and millions of technical words. In essence, one proposal takes the existing structure and collapses its size and increases the utilization of tax credits. The second moves away from the tiered structure based on income to a flat tax on income and transactional taxes replacing the corporate tax.

Let’s look at the main points.

Rubio’s plan

  • Creates three income brackets for taxation — 15%, 25% and 35% — versus the existing seven with the top tier taxed at almost 40% (more than 40% with ObamaCare taxes factored in)
  • Reduces the corporate income tax to 25%, down from what is the world’s highest at 35% (individuals operating small businesses pay 39.6%)
  • Repeals the estate (death) tax, the alternative minimum tax and any ObamaCare taxes
  • Permits exemptions of interest, dividends, and capital gains from income taxes
  • Creates a child credit of up to $2,500 per child that may be partially refundable (if your taxable income zeroes out, you get a tax refund)
  • Replaces standard deductions based on filing status with refundable tax credits

The “cost” of the tax reform plan has been estimated to be up to $6 trillion expanding a decade of implementation. Translation, the government would confiscate $6 trillion less through taxes.

Cruz’s plan

  • Replaces the seven brackets of income taxation with a “flat tax” of 10% on individual income
  • Increases the standard deductions from $6,300 to $10,000 for single filers and $12,600 to $20,000 married filing jointly
  • Creates a universal savings account sheltering up to $25,000 in personal savings
  • Eliminates all itemized deductions except for the home mortgage interest deduction and the charitable deduction
  • Eliminates all individual tax credits except the Child Tax Credit and the Earned Income Tax Credit, which is expanded by 20% Replaces the world’s leading corporate tax of 35% with a “Business Transfer Tax” of 16% on all profits, payroll and business transactions minus capital investment
  • Eliminates the death/estate tax

The “cost” of the Cruz plan would be a net loss to the federal government of $3.6 trillion over 10 years of projected implementation.

Both plans result in economic growth, logically because federal control of individual and corporate assets is reduced. The plan offered by Rubio creates a projected 15% in GDP while the Cruz plan shows GDP growth at 13.9% over the same 10-year window. Of course, there are infinite other variables, but both would be good for the economy.

Appreciate the tension this creates within Congress to reduce spending in light of a reduction in their purse, yet, the increase in demand of jobs and goods in the private sector versus those either subsidized by your taxes or provided by the public sector.

The biggest criticisms of these plans are understandable.

The Rubio plan, according to the Tax Foundation, awards low-income families with a refund via the child and income tax credits whose incomes fall below zero when applied. The benefits to those creating jobs through a small reduction in the corporate income tax does not do enough within the “supply-side” structure of rewarding investment, production and job-creation.

The Cruz plan, while eliminating the corporate tax completely, creates a new business tax applied to the cost of goods and services at each stage of production and transaction. In Europe, this is known as the Value Added Tax (VAT), and it is often a stealth way of raising money and funding those nations’ lavish welfare states. Simply, all the profits are taxed with transactional taxes paid to other companies and businesses incurred as the “cost of business” and are subtracted, hence the official name, “tax-inclusive subtraction-method value-added tax.” Further, wages for employees are no longer tax deductible, but a taxed transaction at the source.

On the positive side of the ledger, the Cruz and Rubio plans tout wage growth of 12.2% and 12.5%, respectively.

To the Left, which believes all property and wealth is best stewarded by the State, the debate and dialogue over tax policy is rhetoric with numbers to appease the wealthy instead of promising free birth control or subsidized housing, internet, phones, et al. To those of us on the center-Right who work, produce and seek to save, the specifics of seeing our hard-earned money left in our paychecks is a priority.

The great news for both the Cruz and Rubio plans is blindingly obvious: After the worst economic recovery recorded in modern history, speaking of economic growth due to real wage increases and job creation are welcomed changes we not only hope for but are counting on.

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