The payroll tax will actually increase a little it just won’t show up on your paycheck anymore. That’s true only in the sense that his plan changes the current 15.3% payroll tax (which workers now split with their employers) into a 16% business tax that employers pay.

He calculates by subtraction rather than addition.Ĭruz also indulges in fuzzy economics when he promises that, if he’s elected president and gets his way, a family of four will pay “no taxes whatsoever - income or payroll - on the first $36,000 of income.”

Here’s why: If you bought a $100 pair of shoes in a state with a 19% sales tax, your total bill would come to $119.īut under the Cruz plan, with the same bill for $119, the senator would say your tax rate is only 16% of the total - since $19 is 16% of $119. He says the rate would be 16%, but the Tax Foundation notes: “This is equivalent to a credit-invoice value-added tax or sales tax of approximately 19%.” Instead, Cruz’s tax appears to have been designed to look deceptively painless.įor one thing, Cruz lowballs the cost.

“And, once adopted, its tax burden should be made visible to the American people, who have a right to know the full cost that they’re paying for their government.” “If the United States is to have a VAT, it should be adopted in the light of day, not snuck through as a business tax,” wrote Alan Viard of the American Enterprise Institute. But poor people consume almost every penny they make, which means more of their income is subject to the VAT.Ĭonservative economists, for their part, dislike this kind of tax because it’s mostly hidden. Wealthy people don’t consume all their income they have enough left over, even after spending on luxuries, to save and invest - activities that are (appropriately) tax-free. Liberals generally dislike VATs because they’re regressive. If enacted, it will be baked into - and will therefore increase - the price of every product and service, including groceries. Actually it’s more like the so-called value added or consumption tax that European countries use. In an earlier column, I erred by calling Cruz’s business tax a sales tax.

Like the flat income tax, it’s simple, bold and efficient. To raise enough money to keep the government running, Cruz adds what experts call a “business transfer tax” and he calls a “business flat tax” - a 16% fee that employers would pay on their profits plus whatever they spend on wages and employee benefits.

Ted cruz flat tax