Your model assume income would be static, which it would not be. The economy would explode.
That said, I agree there would be a shortfall, at least in the short run, but the 10% number is like a used car negotiation.
You start low, and meet in the middle — say a 15% flat tax.
“Your model assume income would be static, which it would not be. The economy would explode.
That said, I agree there would be a shortfall, at least in the short run, but the 10% number is like a used car negotiation.
You start low, and meet in the middle — say a 15% flat tax.”
Yeah, I can go with a 15% rate, as that is approximately my current effective tax rate.
I also agree that this plan would lead to robust economic growth.
It would have essentially doubled Obama's $1T/year deficit in 2012. The economy has not, and can not expand that fast.
Looking back at 2012, which is the latest data published so far: again, I'll use the top 50% bracket. According to the IRS, the AGI floor was $36,055 for this group, which is coincidentally the same value Cruz uses for his standard deduction (for a family of 4).
Total AGI was $8,037B.
Total income tax was $1,152B.
It's tempting to just divide $1,152B by $8,037B to come up with a based percentage of 14.33%. But, you first have to subtract out the $36,055 standard deduction per return. That reduces the TAXABLE income for all households above the median to $5,584B. Divide that into the total income tax, and you get 21%.
But, let's presume the individual tax rate was 15%. Multiply that by $5,584B, and individual income tax revenue would be $838B. That means there would have been $314B LESS individual income tax revenue in 2012.
As you may remember, the deficit in 2012 was $1,100B, or 7% of GDP. So, it would have increased it another 29% -- or to about 9% of GDP.
But, we aren't done yet. In 2012, we collected another $589B in Social Security taxes. It's a little muddled because another $114B was paid to Social Security from the general fund to offset the reduction in temporary payroll taxes. But, since that already increased the deficit, I didn't want to double-count it.
Just eliminating Social Security payroll taxes (never mind the Medicare taxes) would have further boosted the deficit to $1,903, or 12% of GDP.
Looking at it another way: just to replace the payroll tax income for Social Security, we would need a 12.6% flat tax rate on the remaining taxable income after applying the $36,000 standard deduction Cruz has proposed -- and that's without funding any other aspect of the federal government.
There's simply no way to make it work. And as a guy that likes Cruz and is sympathetic to almost every other one of his positions on the issues, I'm telling you that he is going to be eaten alive by anyone that takes a close look at his proposal.
However, I think there's a lot of information missing: with a standard deduction of 36,000 and no payroll taxes for Medicare or Social Security -- approximately 50% of all households will pay no federal taxes at all, aside from excise taxes on gasoline. I really doubt that is what Cruz had in mind, so there's a simplification somewhere that hasn't been stated so far.
Why?