Rubio Campaign Press Release - Fact Check: Ted Cruz Supports a Massive European-Style Value-Added Tax

Ted Cruz attempted to defend his plan, which includes a European-style VAT, during tonight's CBS debate. Here are the facts:

Daily Caller's Matt Lewis: Cruz supports a VAT that is European-style and complex.

"I'm about a week late to this debate, but I wanted to weigh in on the irony of Sens. Ted Cruz and Rand Paul proposing a value-added tax (VAT). It's ironic for a few reasons. First, their idea of a VAT is being praised by columnists in places like the Washington Post for its efficiency in raising revenue. Second, the VAT is specifically a European-style tax that was invented by the French. (Let's just call them 'Freedom Taxes' and see if anyone notices.) Third, in world where we hear a lot about politicians wanting to 'simplify' our taxes, the VAT is fairly complex — and hidden)." (The Daily Caller, Matt Lewis, 11/18/15)

AEI: "Cruz has released a tax reform plan that includes a substantial value added tax (VAT)."

"Following Senator Rand Paul's lead, Senator Ted Cruz has released a tax reform plan that includes a substantial value added tax (VAT)." (AEI, Alan Viard, 10/29/15)

Cato's Daniel Mitchell: While Senator Cruz says he wants a "business flax tax," "what he's really proposing is a value-added tax."

"But here's the part of Cruz's plan that raises a red flag. He says he wants a 'business flat tax,' but what he's really proposing is a value-added tax. … His proposal is a VAT because wages are nondeductible. And that basically means a 16 percent withholding tax on the wages and salaries of all American workers (for tax geeks, this part of Cruz's plan is technically a subtraction-method VAT)." (Cato, 10/29/15)

Tax Foundation's Alan Cole: Senator Cruz's "Business Flat Tax" is actually a "value-added tax."

"Ted Cruz's 'Business Flat Tax' is what most tax policy experts would call a 'tax-inclusive subtraction-method value-added tax' (VAT) or a 'business transfer tax' (BTT)." (Tax Foundation, Alan Cole, 10/29/15)

The Washington Examiner: Tax analysts describe Senator Cruz's "Business Transfer Tax" as "a value-added tax."

"He would also eliminate the current corporate income and payroll taxes, and replace them with what he calls a 'Business Transfer Tax,' which tax analysts would also describe as a value-added tax." (The Washington Examiner, 10/29/15)

Economists agree Cruz proposing a "value-added tax."

"Mr. Rubio argued that Mr. Cruz's 16% Business Flat Tax is actually a value-added tax, a levy on consumption used by every other industrialized nation and despised on the right as the gateway drug to socialism (only a slight exaggeration). Under Mr. Cruz's plan, businesses would be able to deduct payments to other businesses and capital expenses but not profits or wages. 'My proposal is not a VAT,' Mr. Cruz said. 'A VAT is imposed as a sales tax when you buy a good.'  There's no consumer-level tax, but economists across the political spectrum say it's a subtraction-method value-added tax." (The Wall Street Journal, 1/15/16)

Conservatives have opposed a VAT:

President Ronald Reagan in 1985:  "A value-added tax actually gives a government a chance to blindfold the people and grow in stature and size."

REAGAN: "Well, I would have great difficulty accepting such a proposal. I imagine that he's talking about a tax in the nature of a value-added tax. First of all, this appears to be increasing taxes, which I've said we wouldn't do. But a value-added tax actually gives a government a chance to blindfold the people and grow in stature and size. First of all, you are kind of interfering with one of the principal sources of local government levels and State governments in their use of the sales tax, since the Federal Government had so—you might say, confiscated the area of the income tax. But the other thing with that tax is, it's hidden in the price of a product. And that tax can quietly be increased, and all the people know is that the price went up, and they don't know whether the price went up because somebody got a raise, or whether the company wanted to increase profits, or whether it was government. And I just am not enthused about it. I think I've said before, taxes should hurt in the sense that people should be able to see them and know what they're paying." (President Ronald Reagan, Press Conference, 2/21/85)

Palin in 2009 decries a Value-Added Tax.

HANNITY: "Do you think that maybe people are changing their minds, maybe waking up to a little bit to the fact, and you spent some time with President Obama. What did you think of it?" PALIN: "Very nice man. Very nice man. I do think, though, that as more and more Americans are tuning in to the discussion on the value added tax, for instance, they're going to start saying yes, you know, you're right, the only way that we're going to pay for those." HANNITY: "Which is the national sales tax." PALIN: "National sales tax is going to affect every single one of us and take away more opportunities and freedoms to grow, to progress, especially with our small businesses, as more people pay attention to that discussion on the only way to pay for this government largesse is a value added tax, borrowing more money, not drilling for our own domestic supplies of resources, but being even more reliant on foreign sources as we're headed if we say no to off shore drilling, if we keep ANWR locked up, if we're not aggressive about getting Alaska's natural gas pipeline." (Fox News' "Hannity," 7/3/09)

Cruz National Co-Chair Rep. Steve King in 2010: "It is a horrible thing to think about in a free country. And if ever adopt the value added tax, of vat tax, it will be a big step towards the death knell of the liberty of a formerly free people." (Fox News' "Hannity," 4/22/10)

Senator Cruz's VAT would open the door to big government:

Larry Kudlow: Senator Cruz's VAT "opens the door to big-government mischief."

"But two candidates — Ted Cruz and Rand Paul — have proposed value-added taxes (VATs) on the corporate side. I think this is a big mistake, one that opens the door to big-government mischief." (National Review, Larry Kudlow, 11/13/15)

Americans For Tax Reform's Grover Norquist: A VAT is "an extremely efficient money machine for big government."

"What is a VAT? Put simply, a VAT is a European-style sales tax. It's assessed on the profits generated at every stage of production (raw material, manufacturer, wholesaler, retailer, etc.), so there is constant reporting and payment. As such, it's an extremely efficient money machine for big government. The VAT is embedded inside the price of a good (as opposed to the U.S., where sales tax is transparent and on top of the price). As such, people forget they pay it, and European governments have found it too easy to raise the tax repeatedly over time." (Human Events, Grover Norquist, 4/23/10)

Senator Cruz's VAT could be "a relatively simple way of getting more revenue to finance European-style big government."

"But it's still a red flag because I worry about what might happen in the future. If the Cruz plan is adopted, we'll still have the structure of an income tax (albeit a far-less-destructive income tax). And we'll also have a VAT. So what happens 10 years from now or 25 years from now if statists control both ends of Pennsylvania Avenue and they decide to reinstate the bad features of the income tax while retaining the VAT? They now have a relatively simple way of getting more revenue to finance European-style big government." (Cato, 10/29/15)

Senator Cruz's VAT rate would be easy for politicians to increase:

The VAT rate is "easy to increase."

"And because the levy is built into prices, it's invisible to consumers and easy to increase. That makes it anathema to conservatives. 'The VAT is a terrible idea,' says William A. Niskanen, chairman of the libertarian Cato Institute." (Bloomberg Business, 7/20/05)

"One trait of European VATs is that while their rates often start low, they rarely stay that way."

"One trait of European VATs is that while their rates often start low, they rarely stay that way. Of the 10 major OECD nations with VATs or national sales taxes, only Canada has lowered its rate. Denmark has gone to 25% from 9%, Germany to 19% from 10%, and Italy to 20% from 12%." (The Wall Street Journal, Editorial, 4/15/10)

VATs are "a vehicle for periodic stealth tax hikes."

"Because VATs are embedded in the price of products, they can often rise unnoticed by the consumer, which is why liberals love them as a vehicle for periodic stealth tax hikes. While retail sales taxes applied by states and localities in the U.S. are generally made explicit to the consumer, it is customary in many VAT jurisdictions overseas to prohibit shoppers from seeing the portion of their bill that goes to funding government. This is why Ronald Reagan and Milton Friedman often said that the best taxes were those that taxpayers could feel so they would be difficult to raise. We miss those guys." (The Wall Street Journal, Editorial, 3/20/15)

A family of four making less than $36,000 would pay Senator Cruz's VAT: National Review: A family of four making less than $36,000 a year "would pay through either forgone wages or higher prices."

"So the new business tax would fall on labor income as well as corporate cash flow. The wage earner would pay the tax through either lower wages or higher prices or both (relative to what they would be without this new tax). … And while families of four making less than $36,000 a year would not pay income taxes under the plan, they would pay through either forgone wages or higher prices." (National Review, Editorial, 1/13/16)

Senator Cruz's VAT will raise prices for everything consumers buy:

Cato's Daniel Mitchell: "Enacting a value-added tax would be a costly mistake for American consumers and workers."

"Enacting a value-added tax would be a costly mistake for American consumers and workers. Once adopted, the VAT would prove irresistible to politicians eagerly looking for money to pay for new programs. The VAT would also undermine entitlement reform because politicians could gradually increase the tax to finance promised benefits. The tax rate would doubtlessly climb, financing a surge of new federal spending. The result would be a stagnating economy, higher budget deficits, and fewer jobs for American workers. The value-added tax may have some attractive theoretical qualities compared to taxes on income and production, but in the real world, it would simply be another burden on an already overtaxed economy." (Cato, Daniel J. Mitchell, 7/26/11)

AEI's Alan Viard: "VATs are paid by people."

"Like other taxes, VATs are paid by people. And it's wrong to tell the people who bear a tax that they're not paying it." (AEI, Alan Viard, 11/12/15)

With a VAT, the price of everything consumers buy will rise.

"Consumers would have to absorb a serious — though temporary — case of sticker shock as the cost of everything they buy rises. State and local governments will howl that a federal VAT curbs their ability to raise sales taxes." (Bloomberg Business, 7/20/05)

VAT "would be embedded in prices and wages."

"Individuals wouldn't file VAT returns, but the tax would be embedded in prices and wages, thus prompting conservative complaints about transparency."  (The Wall Street Journal, 11/12/15)

The "VAT is very likely to increase that overall level of taxation."

"But the existence of a VAT is very likely to increase that overall level of taxation, particularly over time, just as states with personal income taxes, corporate income taxes, and statewide sales taxes tend to have higher tax burdens than do states possessing just one or two of those options." (National Review, John Hood, 12/23/15)

A family of four making less than $36,000 would pay Senator Cruz's VAT:

National Review: A family of four making less than $36,000 a year "would pay through either forgone wages or higher prices."

"So the new business tax would fall on labor income as well as corporate cash flow. The wage earner would pay the tax through either lower wages or higher prices or both (relative to what they would be without this new tax). … And while families of four making less than $36,000 a year would not pay income taxes under the plan, they would pay through either forgone wages or higher prices." (National Review, Editorial, 1/13/16)

Fortune's Shawn Tully: "Bottom line: Cruz's VAT will cost us all 2.4% of GDP."

"Cruz wants to eliminate those taxes. But he would add new taxes totaling 19%. So all prices—for cars, cheeseburgers, bracelets, new houses—would immediately rise 10%. But that's not the whole story. Employees would no longer have payroll taxes, lifting their wages by 7.65%, which would partially offset the 10% increase in prices we are likely to see. Bottom line: Cruz's VAT will cost us all 2.4% of GDP." (Fortune, Shawn Tully, 1/18/16)

"Cruz's plan actually costs taxpayers a lot more money than they expect."

"Ellis said Rubio is right to point out that Cruz is proposing a VAT but he said the headline should have been that Cruz's plan actually costs taxpayers a lot more money than they expect. 'The effective rate is 24.4 percent under Cruz," Ellis said. "It makes it sound like you can fund the government at these teensy taxes but what really you're doing is funding it on the consumption side.'" (The Washington Post, 1/15/16)

Senator Cruz's VAT would necessitate a larger IRS:

Despite Senator Cruz's desire to "abolish the IRS," his VAT "would still necessitate a substantial taxing authority to police" it all.

"It is a big break for the richest Americans, almost nothing for the middle and very little for poorer Americans. Moreover with the personal and business tax systems still in effect Cruz's plan sacrifices simplification and would still necessitate a substantial taxing authority to police all this (rather than 'abolish the IRS' as Cruz likes to say)." (The Washington Post, Jennifer Rubin, 10/30/15)

Cruz's statement that he would "abolish" the IRS "is an overstatement."

"Mr. Cruz talks frequently about shutting down the tax agency and sending auditors to patrol the U.S.-Mexico border. It's overstated. The individual income tax will still exist. The business tax would require someone to write rules, receive the money, audit companies and collect unpaid taxes — and the payroll tax it replaces is relatively simple to administer. Perhaps the IRS could be smaller, but 'abolish' is an overstatement." (The Wall Street Journal, 1/15/16)

Senator Cruz's support for a VAT has been echoed by leading liberals:

"Paul Volcker, Nancy Pelosi, John Podesta and other allies of the Obama Administration have already floated the idea of an American VAT."

"As Americans rush to complete their annual tax returns today, there is still some consolation in knowing that it could be worse: Like Europeans, we could pay both income taxes and a value-added tax, or VAT. And maybe we soon will. Paul Volcker, Nancy Pelosi, John Podesta and other allies of the Obama Administration have already floated the idea of an American VAT, so we thought you might like to know how it has worked in Europe." (The Wall Street Journal, Editorial, 4/15/10)

Obama: The VAT is "something that would be novel — for the United States."

"A value-added tax (VAT) is a 'novel' idea for the U.S., President Barack Obama said Wednesday. The president neither ruled in nor ruled out implementing a VAT on goods and services, saying that he is waiting to see what recommendations the committee he's set up on deficit reduction will generate. 'You know, I know that there's been a lot of talk around town lately about the value-added tax — that is something that has worked for some countries,' Obama said in an interview with CNBC. 'It's something that would be novel — for the United States.'" (The Hill, 4/21/10)

Nancy Pelosi: "But in the scheme of things, I think it's fair to look at a value-added tax as well."

"Candor about taxes is rare in Washington, so when House Speaker Nancy Pelosi admits that Democrats may have to impose a huge new tax on the middle class to fund their spending ambitions, believe her. Speaking with PBS's Charlie Rose on Monday, Mrs. Pelosi mused publicly about the rising possibility of enacting a value-added tax, or VAT, as part of broader tax reform. 'Somewhere along the way, a value-added tax plays into this,' she said. 'Of course, we want to take down the health-care cost, that's one part of it. But in the scheme of things, I think it's fair to look at a value-added tax as well.'" (The Wall Street Journal, 10/8/09)

John Podesta called "for a 'small and more progressive' VAT."

"John Podesta, an adviser to President Obama and president of the very liberal Center for American Progress, called in September for a 'small and more progressive' VAT." (The Wall Street Journal, 10/8/09)