What the Ted Cruz/Marco Rubio tax war is all about

VATs are one sort of consumption tax, and economists generally agree that consumption taxes allow government to raise revenue with less harm to growth than income taxes because they don’t penalize savings and investment. Many left-leaning economists who favor expanded government spending also favor VATs to pay for it. Back in 2009, some Democrats favored a VAT as a way to finance President Obama’s proposed health care reform and to reduce the budget deficit. The Tax Foundation calls Cruz’s version of a VAT “a powerful tax that captures pretty much all of the income in the country.” Without his VAT, it would have been nearly impossible for Cruz to propose his low flat tax without eviscerating government revenue.

If and when the Cruz counterattack comes, it seems likely to focus on two aspects of Rubio’s tax plan. First, Rubio lowers the top income tax rate less than any other GOP candidates, to 35 percent from the current 40 percent. Second, Rubio would expand the use of tax credits to funnel immediate tax relief to working class and low-income voters. According to Tax Foundation models, the Rubio plan “provides the largest benefits to the lowest-income Americans.” For instance: The bottom tenth of households would see after-tax incomes rise by 44 percent, and 56 percent when accounting for faster economic growth. As the supply-side wing of the GOP sees it — such as the Wall Street Journal’s editorial page — every dollar not “spent” on lowering top rates is a dollar wasted.

In this way, the Rubio plan is in the tradition of politically successful GOP tax reform.