Why Ted Cruz’s VAT Really Is a VAT
Thursday’s GOP presidential debate in South Carolina featured a feisty back-and-forth between Ted Cruz and Marco Rubio concerning Cruz’s tax plan. Rubio said Cruz’s “business flat tax” is really a value-added tax that will blindfold “the American people so that they cannot see the true cost of government.” Cruz argued that a VAT is “a sales tax when you buy a good,” and his new tax is instead “imposed on on business.”
Make no mistake here. Cruz is proposing a VAT add-on to the existing personal income tax system. Specifically, it’s a “subtraction-method” VAT. Cruz explained it pretty accurately in a Wall Street Journal op-ed. A business would pay a 16% tax on its “gross receipts from sales of goods and services, less purchases from other businesses, including capital investment.”
The Tax Foundation — which analyzed the Cruz plan and also describes it as a VAT — explains it this way:
James, let me start by saying. I may have been mistaken about the Cruz tax plan. I’ve read a few pieces that offer that explanation. But, I am having a hard time coming to a conclusion on the subject. If Cruz’s flat tax is a vat tax, then what is the corporate income tax, if […]
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