Marco Rubio launched an attack on his rival Ted Cruz’s tax plan Thursday night, arguing in the Republican presidential debate that it includes a new form of taxation that would steadily expand the government.
Unprompted, the Florida senator warned debate viewers that Cruz’s tax plan includes a “value-added tax,” which he called a “a way to blindfold the people, that’s what Ronald Reagan said.”
The value-added tax, which is a form of consumption tax, would be a new form of tax that a future liberal Congress could raise, one that would hit seniors particularly hard, Rubio suggested.
Cruz immediately responded that the tax included in his plan was not a value-added tax, or VAT, but rather a “business flat tax” that would replace the corporate income tax, the payroll tax and the death tax.
The Texas senator argued that, unlike a VAT, his tax would be imposed on businesses.
“There’s a real difference between Marco’s tax plan and mine,” he said. “Mine gives every American a simple flat tax of 10 percent. Marco’s top tax rate is 35 percent. My tax plan enables you to fill out your taxes on a postcard, so we can abolish the IRS. Marco leaves the IRS code in with all of the complexity.”
Rubio objected to Cruz’s suggestion that his tax plan did not include a VAT. “That’s not an accurate description of the plan,” he said.
Under Cruz’s proposal, Rubio said, businesses would be taxed 16 percent on the money they make and on the wages they pay.
“You’re going to get it by paying your employees less and charging your customers more. That is a tax,” Rubio said. “The difference is you don’t see it on the bill.”
Thursday night’s confrontation was previewed Monday, when Rubio took aim at Cruz’s tax plan as an “anti-free market idea.”
Rubio, in a speech in Florida, laid out the case that Cruz’s corporate taxation plan would lead to an expansion of the size of the federal government.
Cruz’s “business flat tax” is in fact a form of what economists normally would call a value-added tax, which taxes businesses at each stage of production of a final product. Rather than tax corporations on profits and workers on payroll, Cruz would replace both those taxes with a 16 percent tax on revenues, excluding what the companies pay other companies for materials and services. As a result, wages would fall under the tax as well.
Many economists believe that such a tax would be more efficient than the current system. Cruz pointed out Thursday night that supply-sider Art Laffer wrote glowingly of his plan. With just a 16 percent value-added tax and a 10 percent flat tax on individuals, Cruz’s tax plan involves ultra-low rates, making it attractive to conservatives.
But conservative tax experts have long warned that a value-added tax would lead to higher taxes, because it’s relatively painless: Individuals don’t see the tax come out of their paychecks or added to their receipts when they buy goods at the store. Instead, prices would rise.
Rubio made that case against Cruz’s plan Monday, calling it an “intentionally sneaky” form of taxation.
It’s a line of criticism that allows Rubio to go on offense in a situation in which he could be vulnerable in the GOP primary. His own tax plan, while boldly supply-side, does not envision tax rate cuts as steep as some of his competitors’ plans. Instead, he would create a large child tax credit, intended to provide tax relief to families raising children.
For supply-siders, lowering rates is preferable to creating credits for specific groups. Indeed, Rubio’s child tax credit idea has already come under fire on the presidential debate stage. In an October debate, Kentucky Sen. Rand Paul called it a “welfare transfer payment.”
