Ted Cruz’s Flat Tax Is Simply Good for U.S.

Ted Cruz’s Flat Tax Is Simply Good for U.S.

 

By Henry W. Burke

11.25.15

 

Under the Cruz Simple Flat Tax, a family of four with an income of $50,000 would save $5,200 in federal income taxes per year.

A family of four earning $35,000 would pay no federal tax under the Cruz Tax plan.

 

1. DESCRIPTION OF CRUZ SIMPLE FLAT TAX PLAN

Senator Ted Cruz unveiled his Simple Flat Tax Plan on 10.28.15, just before the Presidential Debate in Boulder, Colorado.  Presidential candidate Ted Cruz’s tax plan calls for a simple flat tax of 10 % on individual income; also a “Business Transfer Tax” of 16 % would replace the corporate income tax and all payroll taxes.

https://www.tedcruz.org/tax_plan/

Senator Ted Cruz’s Simple Flat Tax would significantly alter the federal tax code.  It would replace the complicated tax structure with a simple 10 % flat tax rate on personal income.  Because the Flat Tax is so simple, working taxpayers could actually file their taxes with a postcard or phone app.

TAX FREE FOR PEOPLE MAKING $36,000

Under Ted Cruz’s Simple Flat Tax, the current seven rates of personal income tax would be reduced into a simple flat tax rate of 10 %.  For a family of four, the first $36,000 of income would be tax-free.  Quite importantly, deductions for charitable contributions and home mortgage interest payments would be preserved in the Cruz Plan.

GOOD PLAN FOR MIDDLE-INCOME PEOPLE

For middle-income people who have little-to-no investments, the tax deductions for charitable contributions and for mortgage interest are about the only two deductions the average income family can claim; and these two deductions should definitely be left in place so as to continue the support for organizations doing charitable works and also for the homebuilding industry.  Many charitable organizations do wonderful work that greatly benefits mankind.  Without the charitable deduction, many charities would cease to exist! 

NO DEATH TAX

The Cruz Tax Plan eliminates the onerous death tax (or estate tax).  The death tax is double and/or triple taxation.  People are taxed when they earn money; they are taxed again when they invest or save money; and then their money is taxed again when they die.  Because of the death tax, many small businesses and farms must be sold just to pay the heavy death taxes.

NO PAYROLL TAXES

Quite importantly, the Cruz Simple Flat Tax eliminates all payroll taxes.  Because most Americans pay more in payroll taxes than in income taxes, eliminating the payroll tax will create an enormous incentive for people to seek job employment.  According to the Tax Foundation, Cruz’s Simple Flat Tax will create 4.86 million new jobs over 10 years!

NO CORPORATE INCOME TAXES

For businesses, the corporate income tax and all payroll taxes will be eliminated.  The corporate income tax will be replaced by a “Business Flat Tax” at a single 16 % tax rate.

BUSINESS FLAT TAX ONLY 16%

Currently the U.S. corporate tax rate of 35 % is the highest in the developed world.  By replacing this exorbitant rate with a Business Flat Tax rate of 16 %, U.S. businesses will grow and remain in this country instead of moving their jobs off-shore.

 

1. EXAMPLES OF TAXES UNDER CURRENT TAX CODE VS. CRUZ PLAN

Several examples will be used to compare the current tax code with the Cruz Simple Flat Tax.  For ease of comparison, all of these examples feature a family of four (husband, wife, and two children).  For simplicity, combined taxable incomes will be used in each case.

The current taxes for this family are based on 2015 Tax Rates (Married Taxpayers, Filing Joint Returns).  Under the Ted Cruz Simple Flat Tax Plan, the first $36,000 will be tax-free for a family of four; income above this amount is taxed at 10 %.

FAMILY EARNING $35,000 WOULD PAY NO TAX UNDER CRUZ PLAN

Example #1 – John & Gail ($35,000)

John and Gail have a combined taxable income of $35,000.

With the current tax laws, they will pay $4,327 a year in federal income taxes.

Under the Cruz Simple Flat Tax, John and Gail would pay no federal tax; thus the tax savings will be $4,327 a year.

FAMILY EARNING $50,000 WOULD SAVE $5,200 UNDER CRUZ PLAN

Example #2 – Bob & Mary ($50,000)

Bob and Mary have a combined taxable income of $50,000.

With the current tax rules, they will owe $6,577 a year in federal income tax.

Under the Cruz Simple Flat Tax, Bob and Mary would pay 10 % federal income tax for all income over $36,000; this amounts yearly to $1,400 ($14,000 x 10 % = $1,400). 

Thus the tax savings for this family under the Cruz plan would be $5,177 a year ($6,577- $1,400 = $5,177).

FAMILY EARNING $100,000 WOULD SAVE $10,200 UNDER CRUZ PLAN

Example #3 – Bill & Alice ($100,000)

Bill and Alice have a combined taxable income of $100,000.

The current tax laws require them to pay $16,587 a year in federal income taxes.

Under the Cruz Simple Flat Tax, Bill and Alice would pay 10 % for all income above $36,000.  When the $64,000 is taxed at 10 %, the couple will owe $6,400 a year in federal income tax ($64,000 x 10 % = $6,400). 

The savings in taxes per year under the Cruz plan would be $10,187 ($16,587 – $6,400 = $10,187).

FAMILY EARNING $200,000 WOULD SAVE $26,700 UNDER CRUZ PLAN

Example #4 – Rich & Sarah ($200,000)

Rich and Sarah have a combined taxable income of $200,000.

With the current tax code, the couple will pay $43,051 a year in federal income taxes.

Under the Cruz Simple Flat Tax, Rich and Sarah would pay $16,400 in federal income tax per year.  ($200,000 – $36,000 = $164,000; and $164,000 x 10 % = $16,400.) 

Thus the tax savings for this family under the Cruz plan would be $26,651 a year ($43,051 – $16,400 = $26,651).

 

1. TAX FOUNDATION ANALYSIS

All of this may sound too good to be true; personal and business tax rates will be reduced and millions of new jobs will be created.  A person should be asking “Will the Cruz Simple Flat Tax Reform Plan raise the funds needed to operate the federal government?”

NON-PARTISAN ANALYSIS OF CRUZ TAX PLAN

The non-partisan Tax Foundation released a detailed analysis of the Ted Cruz Tax plan on 10.29.15, “Details and Analysis of Senator Ted Cruz’s Tax Plan.”

http://taxfoundation.org/article/details-and-analysis-senator-ted-cruz-s-tax-plan

The static revenue figures assume no economic growth; whereas, the dynamic revenue impact reflects the significant economic growth that the plan would produce. 

On a static basis, the Tax Foundation calculated that Senator Ted Cruz’s Tax Reform Plan would cut federal taxes by $3,666 billion ($3.7 trillion) over the next decade (2015 – 2024).  [For taxpayers, this is a savings in taxes of $3.7 trillion over 10 years; for the federal government, this is a reduction in federal revenue of $3.7 trillion over a 10-year period.] 

CRUZ PLAN NEARLY BREAKS EVEN ON FEDERAL REVENUE

On a dynamic basis (when economic growth is included), the Cruz Tax Reform Plan would reduce federal taxes by $768 billion over 10 years (about $77 billion per year).  The $768 billion drop in revenue is 2.8 % of the $27,471 billion Business Transfer Tax.  Most of the revenue lost by eliminating the various taxes is made up with the substantial revenue from the new 16 % Business Transfer Tax ($25.4 trillion and $27.5 trillion).  The Tax Foundation analysis is shown in the following Table:

 

TABLE 1 – TAX FOUNDATION: REVENUE IMPACT OF CRUZ PLAN

(Revenue Impact for the Ten-Year Period from 2015 – 2024)

Type of Tax	Static Revenue Impact ($ billions)	Dynamic Revenue Impact ($ billions)
Individual Income Taxes	($11,802)	($11,135)
Payroll Taxes	($12,658)	($12,658)
Corporate Income Taxes	($4,413)	($4,413)
Excise Taxes	$0	$83
Estate and Gift Taxes	($238)	($238)
Other Revenue Sources	$0	$122
Business Transfer Tax	$25,444	$27,471
Total Revenue (Taxes)	($3,666)	($768)

 

http://taxfoundation.org/article/details-and-analysis-senator-ted-cruz-s-tax-plan

 

CRUZ PLAN WOULD BOOST GDP ABOUT 14 %

The Gross Domestic Product (GDP) is the monetary value of all finished goods and services for the country, usually on an annual basis.  According to the Tax Foundation’s analysis, the Cruz Simple Flat Tax Reform Plan will boost GDP by 13.9 %, increase capital investment by 43.9 %, increase wages by 12.2 %, and create 4,861,000 additional jobs.

CRUZ PLAN WOULD INCREASE INCOMES 21 %

Taxpayers in this country need a boost!  When economic growth is included, the Cruz Simple Flat Tax Plan would increase after-tax incomes by 21.3 % on average. 

 

CONCLUSION

Senator Ted Cruz’s Simple Flat Tax would significantly alter the federal tax code.

It will replace the complicated tax code with a simple 10 % flat tax rate on personal income.  Because the Flat Tax Plan is so simple, working taxpayers could file their taxes with a postcard or phone app.

The Cruz Tax Plan eliminates all payroll taxes and the small business-destroying death tax (or estate tax). 

The Cruz Plan would repeal all itemized deductions except for charitable contributions and mortgage interest.

For businesses, the corporate income tax would be replaced by a “Business Flat Tax” at a single 16 % tax rate.

Under the Cruz Simple Flat Tax Plan, a family of four earning $35,000 would pay no federal tax.  

With the Cruz Flat Tax, a family of four with an income of $50,000 would save about $5,200 in federal income taxes.

Currently the U.S. corporate tax rate of 35 % is the highest in the developed world.  By replacing this exorbitant rate with a Business Flat Tax rate of 16 %, U.S. businesses would grow and remain in this country

According to the Tax Foundation’s analysis, the Cruz Simple Flat Tax Reform Plan would boost Gross Domestic Product (GDP) by 13.9 %, increase capital investment by 43.9 %, increase wages by 12.2 %, and create 4,861,000 additional jobs.

When economic growth is included, the Cruz Simple Flat Tax Plan would increase after-tax incomes by 21.3 % on average. 

Ted Cruz’s Flat Tax Plan is simply good for the U.S.!

 

The following Education Views report documents how lowering tax rates actually raises more money:

http://educationviews.org/amazing-lowering-tax-rates-actually-raises-more-money/

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BIO FOR HENRY W. BURKE

Henry Burke is a Civil Engineer with a B.S.C.E. and M.S.C.E.  He has been a Registered Professional Engineer (P.E.) for 37 years and has worked as a Civil Engineer in construction for over 40 years. 

Mr. Burke had a successful 27-year career with a large construction company. 

Henry Burke serves as a full-time volunteer to oversee various construction projects. He has written numerous articles on education, engineering, construction, politics, taxes, and the economy.

Henry W. Burke

E-mail:  hwburke@cox.net