I Know that "Conservatives" Don't Wanna Hear This...

But even "The Good Guys" - Ted Cruz and Rand Paul - don't seem to really "get" this whole "limited government" thing...

Chris Edwards of the CATO Institute writing in NRO:

*  *  *  *  *

Senators Ted Cruz and Rand Paul are strong advocates of limited government.

* AT LEAST THAT'S WHAT THEY KEEP TELLING US...

They are gifted spokesmen for free markets, and they are heroes for taking on the GOP establishment on issues such as over-spending and civil liberties.

* COMPARATIVELY... YES...

That is why their embrace of the value-added tax (VAT) in their presidential campaigns is so baffling.

VATs are the revenue engine of big-government welfare states, not a proper funding source for the small federal government that both senators favor for America.

Cruz and Paul propose to rip up the current tax code and replace it with individual income taxes at low, flat rates — Cruz at 10% and Paul at 14.5%. Their plans would repeal the estate tax and corporate income taxes, while reducing the overall tax load.

So far, so good.

But then we come to the VAT, which the candidates hide behind innocuous names — “business flat tax” for Cruz and “business transfer tax” for Paul.

(*JUST SHAKING MY HEAD IN DESPAIR*)

Actually, Paul’s title is accurate, because these taxes would “transfer” trillions of dollars into government coffers unseen by most citizens.

(*MIGRAINE HEADACHE*)

It is true that the VATs proposed by Cruz and Paul have modest rates — 16% and 14.5%, respectively. The problem is not the rates, but the tax bases. VATs have huge bases. That’s because — unlike income taxes — they do not allow businesses to deduct employee compensation when calculating the taxable amount. So both labor income and capital income are taxed at the business level under VATs. The result would be that tax revenues from businesses under the Cruz and Paul VATs would be enormous.

* SO THEIR "REPEAL" OF THE CURRENT CORPORATE INCOME TAX ISN'T MUCH OF A "REPEAL" AFTER ALL...

(*SIGH*)

While the plans would abolish the corporate income tax (CIT), the new VATs would have corporate tax bases at least four times larger than the CIT. So every rate increase in the VAT that future politicians might push would raise vastly more than the same rate increase on current business income taxes.

* I'M STARTING TO FEEL SICK TO MY STOMACH...

I share Cruz and Paul’s passion for major tax reform, but we should not hide the huge cost of the government from the people. Federal spending currently costs 21% of the nation’s gross domestic product. So a simple flat tax on individuals at a 21% rate would more accurately convey the cost of government to the public.

* THAT MAKES PERFECT SENSE TO ME. INDEED, I'D SUPPORT A 17% RATE WITH A CORRESPONDING CUT IN GOVERNMENT SPENDING - LIMITING IT TO 17% OF GDP - AS THE OPENING SALVO AGAINST THE BEAST WE KNOW AS THE FEDERAL GOLIATH.

By dropping individual tax rates to 10% and 14.5% with big exemptions...

* AS REGULAR READERS KNOW, I DETEST THE "EXEMPTIONS."

* FRANKLY... WHILE I'D BE OK WITH A 17% FLAT TAX, I'D RATHER HAVE A GRADUATED "FLAT" TAX - SAY THREE, FOUR, OR FIVE BRACKETS MAX WITH A "FLOOR" OF SAY 2% AND A "CEILING" OF SAY 33%.

Cruz and Paul would be creating a mirage of cheap government.

(*SIGH*)

Those low “prices” for government would raise the demand for it — people would clamor for more subsidies from Washington.

* NO DOUBT...

(*SHRUG*)

Like Cruz and Paul, I want cheap government, but the way to actually get it is to slash spending.

* YES! MILITARY AS WELL AS DOMESTIC!

The VAT issue comes down to where we want to tax labor income, which is a huge base. Because Cruz and Paul shift much of the collection to businesses, more of the tax burden gets hidden from citizens and voters.

* AND HIDDEN IS BAD!

For the Cruz plan, the Tax Foundation estimates that 71% of total taxes in coming years would come from the hidden business VAT, while just 22% would come from the individual income tax. By contrast, if the individual income tax is not reformed, it will raise about 50% of total federal revenues in coming years.

Furthermore, Cruz and Paul would abolish the 15% federal payroll tax. Currently, that levy is partly hidden from workers in the tax’s “employer half.” But the solution to that transparency problem is to change the administration of the tax so that the full amount is visible on workers’ pay-stubs, which is where the burden already falls in reality.

* MAKES SENSE...

If the government is going to take our money, it should mug us on the street in broad daylight, rather than sneak into our homes at night and burglarize us unnoticed.

* AGREED!

The VAT would encourage more burglary.

* AGREED!

Cruz and Paul want smaller government, but down the road...

(*SIGH*)

Other politicians looking to shore up entitlement programs will say, “They could be financed with just a small tax increase on businesses.” But each “small” increase in the VAT rate would transfer huge amounts of additional cash from the private economy to the government.

(*BANGING MY HEAD AGAINST THE WALL*)

Cruz and Paul deserve credit for thinking big on tax reform, but they should remember the H. L. Mencken line, “Democracy is the theory that the common people know what they want, and deserve to get it good and hard.”

If the common people want government spending, then the tax system ought to make them feel the full cost “good and hard.”