October 30, 2015
By Alan Viard
Following Senator Rand Paul’s lead, Senator Ted Cruz has released a tax reform plan that includes a substantial value added tax (VAT).
Cruz’s plan would abolish the payroll and self-employment tax, the corporate income tax, and the estate and gift tax, and would also slash individual income tax rates to a flat 10%. The plan would recoup part of the revenue loss by adopting a 16% VAT, slightly larger than Paul’s proposed 14.5% VAT.
Like Senator Paul (and Herman Cain in 2011), Senator Cruz shies away from the V word. In his Wall Street Journal op-ed, he calls his VAT a “Business Flat Tax.” Rather than saying that each business would pay tax on its value added, he says that it would pay tax on its “gross receipts from sales of goods and services, less purchases from other businesses, including capital investment” – a precise, but not very transparent, definition of value added. As the Tax Foundation and a Cato Institute scholar point out, Cruz’s proposed tax, like Paul’s proposed tax, is a “subtraction-method value added tax.”
Read the full article at the American Enterprise Institute: Another proposal for a hidden VAT