The VAT in Ted Cruz’s Tax Plan is a Threat to Limited Government and the Economy

Michael Johnson
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Posted: Jan 15, 2016 12:01 AM
The VAT in Ted Cruz’s Tax Plan is a Threat to Limited Government and the Economy

Tax reform is a key part of reviving our economy so that the 21st century is another American century. That’s why Senator Marco Rubio put together a tax reform plan that would generate economic growth, an employment boom, and rising wages for American workers.

The Rubio tax plan would make the economy grow twice as fast as it has this century because it would lower taxes on hard-working families, allowing them to take home more of what they earn so they can use it to provide a better future for their children. It would reduce taxes on saving and investment, the lifeblood of a thriving economy, so that businesses can create more jobs and pay their workers more. And it would make the way we tax our businesses competitive with other nations that are outcompeting us today for investment and jobs.

The Rubio tax plan safely achieves these enormous benefits while creating no risk to the economy or to our shared goal of a limited government.

The same cannot be said of Senator Ted Cruz’s tax plan. Sen. Cruz’s plan would threaten the stability of the economy and help liberals achieve their dreams of a bigger government by creating a value-added tax, or VAT.

You are probably unfamiliar with a VAT because it is mostly a tax foreign countries use, especially in Europe. European countries use their VATs to levy high taxes on the middle class so they can fund their enormous governments. As leading anti-tax crusader Grover Norquist is fond of saying, “VAT is a French word for big government.”

Liberals have wanted a VAT for years because of its ability to raise large amount of revenue unsuspectingly from the middle class. They want that revenue to grow government even more than they already have.

Cruz argues that his plan is not a VAT because businesses would pay it, rather than it being collected when families make purchases like is done in Europe. Don’t be fooled. Cruz’s VAT and European VATs are economically identical, and his entails the same substantial threat of growing government.

The VAT raises a whopping 71 percent of all the revenue in Cruz’s plan. It does so because it applies to an enormous tax base, including every dollar of all Americans’ wages. Because of this, a small increase in the rate results in a huge tax increase, while being largely hidden from the unsuspecting public.

That is why Sen. Cruz’s VAT is such a risky venture. It is a liberal’s dream mechanism for getting the revenue they need to transform our government into a European one. Once they get ahold of it, the sky is the limit for taxes.

Families will bear a large burden of the VAT. Sen. Cruz likes to say that a family of four making less than $36,000 a year would pay no tax under his plan. But that is untrue. Under his VAT, they will pay a 16 percent tax on every dollar they earn. That is more than they pay in payroll taxes today. That family of four would pay nearly $6,000 in tax under Cruz’s dangerous VAT.

A VAT would be economically destabilizing because it would create an enormous amount of uncertainty. Businesses thrive on consistency and predictability, and until they understood how the VAT would impact them, they would hunker down and put off major decisions, much like they have done under Obamacare and other big-government ventures during the Obama years. Families would pay the price with slower economic growth and less opportunity.

The IRS needs a major overhaul. It has lost the faith of the American people, and rightfully so, because of its shameful targeting of conservative groups to help Democrats win elections. Sen. Cruz says his plan would abolish the IRS. But that is inconsistent with his VAT, which would be difficult to enforce. How will he collect the massive amounts of revenue his will raise with no agency to enforce it?

VATs are way outside the mainstream of conservative economic thought for good reason. Cruz’s support of a VAT is as troubling as his backing of an unsafe return to the gold standard. A reversion to the outdated gold standard would tank the economy. And if it were in place when his VAT went into effect, the two in tandem would necessitate a steep drop in everyone’s earnings. Not to mention that it would help China and Russia, the world’s leading gold suppliers.

The economy is still struggling under the weight of President Obama’s failed ideology. Now is the worst time to threaten it with a hazardous tax like the VAT. Marco Rubio’s plan carries none of the associated risk and delivers more growth to help America’s working families. When it comes to taxes, the conservative choice couldn’t be clearer.