At the Republican debate on CNBC in Boulder, Colo., the candidates sparred on the issue of the flat tax, with some touting its merits and others dismissing it as fantasy. So which camp is correct?
A national flat tax, as opposed to our current system of progressive taxation, would tax all income levels at the same rate.
Policy wonks argue over the potential economic result, but flat tax supporters suggest that the increased spending resulting putting the kibosh on a complicated tax code would give government revenues, in the case of a 17% flat tax, a 1.8 percentage-point shot in the arm.
At the debate, Sen. Ted Cruz delineated his flat tax that would have a family of four pay nothing in taxes for the first $36,000 earned. He then proposes paying 10% as a flat tax.
“No hedge fund manager pays less than his secretary,” Cruz said.
In addition, he also proposed a business flat tax of 16%.
The Tax Foundation says Cruz’s plan would allow the economy to generate 4.9 million jobs , raise wages over 12 % and increase growth by 14%. With dynamic scoring, the Tax Foundation says, Cruz’s plan would cost less than $1 trillion.
Every single income decile sees a double-digit increase in after tax income.
According to a seminal study by the National Center for Policy Analysis, the flat tax would boost the production core of the economy in every area by getting rid of corporate tax avoidance schemes, except for subsidized agriculture since tax subsidies would be lost there. In the case of a 17% flat tax, there's also the suggestion that the housing sector would see a 1.5% uptick.