As we’ve cheerfully noted on these pages, the good news on the presidential campaign trail is that almost all Republicans are now for serious pro-growth tax reform and simplification. Every candidate wants lower rates (some a one-rate flat tax), fewer loopholes and carve-outs, and a reduced role for an abusive IRS.
What a contrast with Bernie Sanders, who declared at last week’s Democratic debate that he could live with a 90% tax rate on the rich. Why not take it all, Bernie?
All the GOP tax plans look good to us — though some are admittedly better than others. The danger now is that too many conservatives have formed a circular firing squad and are shooting down nearly all proposals on purity grounds or attacking trivial differences.
This is the surest way to derail tax reform altogether.
If Ronald Reagan, Jack Kemp and Bill Bradley had held to such a “my way or the highway” approach, the epic 1986 tax reform that collapsed tax rates to 15% and 28% never would have happened.
Which brings us to Rand Paul and Ted Cruz. The two of us helped craft their low-rate flat tax plans.
The plans are similar: Paul’s rates are 14.5% on business net sales and wages and salaries. Cruz has a 16% business net sales tax and a 10% wage and salary tax.
These would be the lowest tax rates since the income tax was devised 100 years ago. Both are estimated by the Tax Foundation to grow the economy by a gigantic $2 trillion in extra GDP per year after 10 years.
Both eliminate almost all deductions and special-interest carve-outs. (Against our wishes, they retain the tax write-off for charitable organizations and have family deductions that are too big. But no one’s perfect.)
They completely kill the corporate tax, the estate tax and the FICA payroll tax.
Yet conservatives are strangely griping. Economists at the Cato Institute have joined with Larry Kudlow to complain that the business tax is a value-added tax (VAT). Such a dreaded tax, they fear, would be a giant new source of revenue and lead to government gone wild, as has happened in Europe.
That’s the last thing we want.
But nearly all leading flat-tax plans have some form of VAT to replace the god-awful corporate income tax. If these plans didn’t eliminate the corporate tax entirely, and the new tax was a European-style add-on VAT, we’d be standing shoulder-to-shoulder with Kudlow in denouncing them.
When we designed our Complete Flat Tax in our book “Return to Prosperity,” we came up with this business tax system with no deductions, simple as can be, and the lowest rate just about anywhere in the world.
Hello. That’s exactly what you want in a good tax, isn’t it?
Almost every economist will agree that the right way to tax businesses is on their income minus their allowable expenses.
The crux of the complaint here is that the Paul and Cruz tax plans are too efficient and too pro-growth and thus raise too much revenue.
Let’s go back to basics.
The sole reason we need taxes is to raise the requisite revenues to fund government. (The left wants taxes to punish the rich, but that’s the subject of another column.) The U.S. government should collect taxes in the most efficient way possible so as to do the least damage to the economy.
Criticizing the Cruz and Paul VATs based on worries about providing too much revenue to government is like arguing against cutting the capital gains tax rate — because every time we cut that rate, the feds get more revenue.
If a VAT raises lots and lots of revenue at minimal economic cost, it enables us to eliminate all sorts of other taxes that are less efficient and more damaging to the economy. As Br’er Rabbit told Br’er Fox: “Please, please don’t throw me in the briar patch.”
We fail to see how cutting individual tax rates from 40% and business taxes from 35% to 16% or less isn’t conservative or pro-growth.
We fail to see how eliminating the corporate and death taxes isn’t pro-growth.
We fail to see how allowing American companies to expense all their capital expenditures immediately isn’t pro-growth.
And for Trump voters, there’s a bonus: Under the Paul and Cruz plans, all imports will be taxed at 14.5% or 16%, respectively, and all our exports won’t be taxed at all.
Under either of these plans, no country — not China, not Mexico — will ever eat our lunch again.
• Laffer is chairman of Laffer Associates.
• Moore is an economics consultant with FreedomWorks
Source: Investor’s Business Daily: