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February 24, 2016
The VAT: Coming Soon to a Campaign Stop Near You
by Alan D. Viard

Full Text Published by Tax Analysts®

This viewpoint first appeared in the February 8, 2016 edition of Tax Notes. Alan D. Viard

Alan D. Viard is a resident scholar at the American Enterprise Institute. He thanks Alex Brill, Adele Hunter, Jason Saving, and Michael Strain for helpful comments. He is solely responsible for any errors.

In this article, Viard discusses proposals by two Republican presidential candidates, Sens. Ted Cruz, R-Texas, and Rand Paul, R-Ky., to replace much of the federal tax system with a subtraction method VAT. Replacing income taxes with a VAT has the potential to boost investment and long-run economic growth. Unfortunately, Cruz and Paul misleadingly describe their proposed VATs as business taxes and underplay or deny the tax burden that a VAT would impose on workers. They also have not addressed the effects on the Social Security program of replacing the payroll and self-employment tax with a VAT.

Copyright 2016 Alan D. Viard.
All rights reserved.

* * * * *

Two Republican presidential candidates -- Sens. Ted Cruz, R-Texas, and Rand Paul, R-Ky. -- have proposed replacing much of the federal tax system with a VAT. Cruz's proposed VAT would have a 16 percent tax-inclusive rate, and Paul's proposed VAT would have a 14.5 percent tax-inclusive rate. Both VATs would be administered through the subtraction method rather than the credit invoice method used by most countries with VATs.

The use of the subtraction method would not alter the fundamental economic properties of the VAT. A VAT is equivalent to an employer payroll tax plus a business cash flow tax. The business cash flow tax imposes a tax burden on capital in existence on the implementation date and on above-normal returns generated by new investments. Like other consumption taxes, a VAT does not tax normal returns on new investments.

Although VATs and other consumption taxes have the same work disincentives as income taxes, they avoid the saving and investment disincentives that are built into income taxes. Replacing much of the income tax system with a VAT, as the Cruz and Paul plans would do, therefore has the potential to increase investment and long-run economic growth. However, part or all of the beneficial effects may be lost if the plans' revenue losses are not offset by spending cuts.

The biggest problem with the Cruz and Paul plans is their pronounced lack of tax transparency. The senators have consistently described their proposed levies as business taxes rather than VATs and have underplayed or denied the burden that the VATs would place on workers. Moreover, their proposed VATs would be largely invisible to the public because they would not be listed on customer receipts or pay stubs.

The Cruz and Paul plans would also repeal the payroll and self-employment taxes that are earmarked to finance Social Security and Medicare Part A. The repeal would have problematic implications, which Cruz and Paul have not addressed, for Social Security's budgetary status and the design of the Social Security benefit formula.

A. The Proposals

In June 2015 Paul released a plan calling for far-reaching changes in the federal tax system. Under the plan, the corporate income tax, the payroll and self-employment tax, the net investment income tax, the estate and gift tax, tariffs, and the telephone excise tax would be repealed. The individual income tax rate would be reduced to a flat 14.5 percent, and the standard deduction and personal exemption would be increased. The itemized deductions for charitable contributions and mortgage interest, the child tax credit, the earned income tax credit, the tax preferences for retirement saving, and the exclusion of employer-provided health insurance would be retained, but almost all other exclusions, deductions, and credits would be eliminated.

To replace part of the revenue loss from those tax reductions, Paul's plan would adopt a new 14.5 percent tax that would apply uniformly to all companies. In the article announcing his plan, Paul explained, "This tax would be levied on revenues minus allowable expenses, such as the purchase of parts, computers and office equipment. All capital purchases would be immediately expensed." Although Paul's description precisely fits a subtraction method VAT, he carefully avoided using that term and called the new tax a "business-activity tax."1

In its analysis of the Paul plan, the Tax Foundation identified the economic nature of the proposed new tax. Noting that Paul had also called the tax a business transfer tax, the foundation observed, "To a tax analyst, a [business transfer tax] is a type of value added tax, although it looks nothing like a European-style VAT because it employs a much simpler and more straightforward collection method." The foundation estimated that the plan's 10-year revenue loss would be $2.97 trillion in the absence of macroeconomic effects but only $960 million after accounting for favorable macroeconomic effects.2

In October 2015 Cruz released a tax reform plan.3 As under Paul's plan, the corporate income tax, the payroll and self-employment tax, the NII tax, and the estate and gift tax would be repealed. The individual income tax rate would be reduced to a flat 10 percent. The plan's provisions for deductions, credits, and exclusions were similar to those in Paul's plan.

Cruz's plan would adopt a new 16 percent tax. In the article announcing his plan, Cruz described the tax as applying to "companies' gross receipts from sales of goods and services, less purchases from other businesses, including capital investment." Having followed Paul's lead in proposing a subtraction method VAT, Cruz also followed his lead in avoiding the use of the term "VAT," calling the new tax a "business flat tax."4 In its analysis of the plan, the Tax Foundation described the tax as "a 16 percent 'Business Transfer Tax,' or subtraction method value-added tax." The Tax Foundation estimated that the plan's 10-year revenue loss would be $3.67 trillion in the absence of macroeconomic effects but only $770 billion after accounting for favorable macroeconomic effects.5

Cruz and Paul quote tax-inclusive rates, which are lower than the corresponding tax-exclusive rates. The 16 percent tax-inclusive rate of Cruz's proposed VAT means that a $16 tax is collected on a good with an after-tax price of $84 and a pretax price of $100. Because $16 is 19.05 percent of $84, the corresponding tax-exclusive rate is 19.05 percent. The 14.5 percent tax-inclusive rate in Paul's plan corresponds to a 16.96 percent tax-exclusive rate. Tax-inclusive and tax-exclusive rates are each equally valid ways of quoting tax rates, but it is important to understand which type of tax rate is being quoted.6

B. Subtraction, Credit Invoice: What's in a Label?

Cruz and Paul propose subtraction method VATs, breaking from the common international pattern of imposing credit invoice VATs. As the Tax Foundation said, "a business transfer tax is also often known as a subtraction-method value-added tax. While its base is identical in economic terms to that of the credit-invoice VAT seen in many OECD countries, it is calculated from corporate accounts, not on individual transactions."7

To compare the two methods, consider the application of a VAT to a production chain in which a manufacturer produces a product that it sells for $200 to a wholesaler, who sells it for $300 to a retailer, who sells it for $400 to a consumer. All sale prices are net of tax.

Under the subtraction method, each business remits tax on sales (both sales to other businesses and sales to consumers) minus purchases from other businesses. Each business computes its tax based on its aggregate sales and aggregate purchases, without tracking specific transactions. Wages are not deducted.

With a 16 percent tax-inclusive rate, the following taxes are remitted under the subtraction method:

  • The manufacturer remits $32 tax, 16 percent of its $200 tax base ($200 sale to the wholesaler).
  • The wholesaler remits $16 tax, 16 percent of its $100 tax base ($300 sale to the wholesaler minus $200 purchase from the manufacturer).
  • The retailer remits $16 tax, 16 percent of a $100 tax base ($400 sale to the consumer minus $300 purchase from the wholesaler).

Total tax collections are $64, which is 16 percent of the $400 consumer price.

Under the credit invoice method, each business remits tax on its sales, but the tax is deemed to be have been paid by the purchasers, and the business is deemed to have collected it from the purchasers. Each business claims credit for the taxes remitted by businesses that sold to it, which that business is deemed to have paid. Taxes are computed separately for each transaction.

With a 16 percent tax-inclusive rate (which a credit invoice VAT would probably describe as a 19.05 percent tax-exclusive rate), the following taxes are remitted under the credit invoice method:

  • The manufacturer remits $32 tax, 16 percent of its $200 sale to the wholesaler. That tax is deemed to be collected from, and paid by, the wholesaler.
  • The wholesaler remits $16 tax. It remits $48 gross tax (16 percent of its $300 sale to the retailer), which is deemed to be collected from and paid by the retailer. However, the wholesaler claims credit for the $32 tax that the manufacturer was deemed to have collected from it, reducing its net remittance to $16.
  • The retailer remits $16 tax. It remits $64 gross tax (16 percent of its $400 sale to the consumer), which is deemed to be collected from and paid by the consumer. However, the retailer claims credit for the $48 tax that the wholesaler was deemed to have collected from it, reducing its net remittance to $16.

As before, total tax collections are $64.

The two methods label the tax remittances quite differently. Under the credit invoice method, the consumer is deemed to pay the entire $64 tax, which is collected from her by the retailer. None of the businesses are deemed to pay any net tax because each of them receives a full offsetting credit for the tax deemed to be collected from it. Under the subtraction method, the consumer is not deemed to pay any tax. Instead, the manufacturer is deemed to have paid $32, and the wholesaler and retailer are each deemed to have paid $16.

Nevertheless, the two collection methods result in the same tax remittances.8 The two methods therefore have the same real economic effects, despite their different labels.

In practice, remittances may not always be the same under the two collection methods. Under the credit invoice method, a business may not claim credit for the tax that was supposed to be remitted at the preceding stage of production, unless it has an invoice showing that the tax was actually remitted. Under the subtraction method, as under income tax systems, a business may deduct its purchases from another business without proving that the other business complied with its tax obligations. The collection methods also differ if tax rates vary across businesses. Despite those potential differences, subtraction method and credit invoice VATs have the same fundamental economic properties.

C. The Economics of the VAT

1. Taxing wages and business cash flow. To understand the economic burden of a VAT, it is useful to define business cash flow. Business cash flow is a business's sales minus its purchases and wage payments. In other words, it equals the business's value added minus its wage payments. It also equals the net capital income generated by the business minus its net investment. The difference between business cash flow and capital income arises because capital purchases are expensed in computing business cash flow and are depreciated in computing capital income.9

Under a 16 percent VAT, each business remits tax equal to 16 percent of its value added, or 16 percent of its wage payments plus 16 percent of its business cash flow. The 16 percent VAT is therefore economically equivalent to a 16 percent employer payroll tax and a 16 percent business cash flow tax.

If the worker's marginal product of labor does not change, a 16 percent employer payroll tax reduces by 16 percent the real wages that the business pays to workers. The 16 percent employer payroll tax embedded in a 16 percent VAT has the same effects.

It is easy to see the source of the tax burden. The VAT reduces by 16 percent the value of the worker's output to the business because the business must remit 16 percent of that output to the government. The market-clearing real wage is therefore reduced by 16 percent.

The VAT also includes a 16 percent tax on business cash flow. Economic analysis reveals that a tax on business cash flow is a tax on the capital in existence when the tax is implemented plus a tax on above-normal returns from new investments.10 Because new investment is expensed, there is no tax on new investments with normal returns. The use of expensing makes the VAT a consumption tax rather than an income tax.

2. Monetary policy implications. At first glance, the burden of a business cash flow tax falls on equity holders because they are businesses' residual claimants. However, the Federal Reserve's monetary policy response may shift the tax burden.

The Federal Reserve is likely to increase the consumer price level in response to any reform that significantly increases the employer-level tax on labor and thereby reduces the market-clearing level of the real wage. The consumer price increase allows real wages to fall without pushing down nominal wages, which are likely to be rigid.11 Although the Cruz and Paul plans reduce the overall federal tax burden, they increase employer-level taxes on labor because the VAT introduced by the plans is larger than the employer payroll tax repealed by the plans. To avert nominal wage declines, the Federal Reserve might increase the consumer price level by up to 10.59 percent under the Cruz plan and up to 8.65 percent under the Paul plan.12

The one-time price increase reduces the real value of the business's debt, shifting part of the burden of the business cash flow tax from equity holders to debt holders. The price increase also reduces the values of loans between households that are outstanding when the VAT is introduced, helping borrowers and harming lenders. The rise in the consumer price level changes the distribution of the VAT's tax burden but does not increase the total size of the burden.

If the Federal Reserve does not increase the price level, the burden of a VAT should be viewed as falling on workers, recipients of above-normal returns on new investment, and holders of equity claims on the business capital in existence when the VAT is introduced. If the Fed increases the consumer price level, that description of the burden should be modified to reflect the losses to lenders and debt holders and the gains to borrowers and equity holders. Although some analyses treat the VAT burden as falling on consumers, that approach is unsound. Treating workers as incurring a VAT burden when they spend their wages rather than when they receive them is misleading because it differs from how workers' income tax burdens are commonly analyzed. Also, treating recipients of inflation-indexed transfer payments as bearing a burden when they spend their payments is incorrect because the VAT does not reduce the buying power of those payments.13 Jim Nunns, Eric Toder, and Joseph Rosenberg of the Urban-Brookings Tax Policy Center have provided an excellent method for analyzing the burden of a VAT.14

3. Economic growth and distribution. Substituting a consumption tax, such as a VAT, for an income tax can promote economic growth. Consumption taxes generally cause fewer economic distortions than income taxes.

In one important respect, the two types of taxes are similar. Contrary to what some people apparently believe, consumption taxes impose the same work disincentives as income taxes. A consumption tax reduces the amount of current or future consumption that an individual can obtain by giving up leisure. Thinking about the VAT as an employer payroll tax plus a business cash flow tax is a good way to see that the VAT has the same work disincentives as an employer payroll tax.

Unlike income taxes, however, consumption taxes do not penalize new saving and investment. If the tax rate remains constant over time, future consumption financed by saving and investment faces the same percentage tax rate as current consumption. As discussed above, new investment is expensed rather than depreciated in computing a business's VAT remittance. For a new investment with normal returns, the tax savings from the upfront expensing deduction fully offsets the present discounted value of the taxes on the investment's future payoffs, assuming that the tax rate remains constant. Unlike business income taxes, business cash flow taxes do not tax normal returns on new investments.

Replacing part of the individual income tax and all of the corporate income tax and the estate and gift tax with a VAT would dramatically reduce the tax system's penalty on saving and investment. That tax swap has the potential to increase saving and investment, thereby increasing long-run growth.

The Tax Foundation used its dynamic economic model to estimate the effects of the Cruz and Paul plans on economic growth. In the long run, according to their estimates, the Cruz plan would increase the capital stock by 43.9 percent and boost GDP by 13.9 percent, and the Paul plan would increase the capital stock by 40.5 percent and boost GDP by 12.9 percent.15

Estimates of the long-run macroeconomic effects of tax reforms depend on many assumptions. The Tax Foundation's model16 effectively treats the U.S. economy as small and perfectly open, allowing it to absorb unlimited amounts of additional capital investment by drawing funds from foreign savers without any increase in after-tax returns paid to domestic savers. Because the United States is a large, imperfectly open economy, however, the increases in the capital stock and GDP are likely to be smaller than the Tax Foundation has estimated. The foundation's model also does not account for federal budget deficits crowding out investment. Crowding out is likely to offset at least part of the increased investment unless the revenue losses of the Cruz and Paul plans are offset by spending reductions. The foundation noted that its growth estimates for the Cruz plan were contingent on it being "appropriately financed."

As with any move to consumption taxation, the gain to Americans' well-being would be smaller than the long-run increase in GDP. Part of the additional output would be paid to the foreign savers who helped finance the increase in investment. Also, to reap the increase in their long-run incomes, Americans would have to increase their saving, which would lower their consumption and living standards in the short run.

The Cruz and Paul plans would probably make the federal fiscal system less progressive. The Tax Foundation's estimates show that each plan would give all income groups a net tax reduction, although low-income groups would receive smaller increases in after-tax incomes. The analysis is incomplete, however, because the plans are incomplete. The plans do not specify the spending cuts that would be required to offset the revenue loss. Reductions in entitlement benefits would likely fall largely on middle-income and low-income households, potentially offsetting their tax reductions.

Although the Cruz and Paul proposals offer potential economic benefits, the candidates' descriptions of their proposed VATs and the manner in which the VATs would be administered lack transparency.

D. Lack of Transparency

As noted above, Cruz and Paul refer to their VATs as business taxes, which obscures their status as VATs. The terminology could easily mislead voters into thinking that the tax's economic burden falls on owners of businesses, with no burden on workers.

In the article announcing his plan, Paul stated that the plan would "apply this uniform 14.5 percent business-activity tax on all companies -- down from as high as nearly 40 percent for small businesses and 35 percent for corporations."17 By inviting readers to compare the new tax to existing taxes on business profits, the statement suggests that the tax would impose no burden on workers.

At the January 14 Republican debate, Cruz said, "The business flat tax in my proposal is not a VAT. A VAT is imposed as a sales tax when you buy a good. This is a business flat tax. It is imposed on business."18 The statement exploits the labeling used by the subtraction method, which does not describe any of the tax as falling on the consumer. Of course, placing the legal incidence of the tax on businesses does not alter its economic burden.

Other statements by the candidates go even further in underplaying or denying the tax burden on workers. Paul wrote that his plan "eliminates payroll taxes, which are seized by the IRS from a worker's paychecks before the family ever sees the money. This will boost the incentive for employers to hire more workers, and raise after-tax income by at least 15 percent over 10 years."19 The statement ignores the 14.5 percent employer payroll tax embedded in the plan's VAT, a tax that would also be collected by the IRS before workers see the money. The substitution of the VAT for today's payroll taxes would have almost no net effect on hiring incentives and after-tax income.

In the article announcing his plan, Cruz listed as one of its features: "For a family of four, no taxes whatsoever (income or payroll) on the first $36,000 of income."20 Cruz was even more emphatic at the November 10, 2015, Republican debate: "For a family of four, for the first $36,000 you earn, you pay no taxes whatsoever. No income taxes, no payroll taxes, no nothing."21 In reality, families would face a 16 percent tax on their wages, starting at the first dollar. Media reports have described and criticized the candidates' unwillingness to identify their proposed VATs.22

The proposed VATs would also be administered in ways that would conceal the taxes from the public. Some countries with credit invoice VATs list the tax on customer receipts, although other countries with those taxes do not. But a subtraction method VAT would surely not be listed on customer receipts because none of the tax would be labeled as a tax on consumers. At the January 14 debate, one of Cruz's rivals, Sen. Marco Rubio, R-Fla., criticized the Cruz plan's lack of transparency. He noted that businesses facing the VAT would respond by "paying your employees less and charging your customers more; that is a tax -- the difference is, you don't see it on the bill."

Some of the taxes that the proposed VATs would replace, particularly the corporate income tax and the employer payroll tax, are also hidden from the public. Nevertheless, the Cruz and Paul plans would result in a net loss of tax transparency because they would replace the employee payroll tax and much of the individual income tax, which are visible to the public, with a new tax that would be hidden from public view.

The use of a hidden VAT could conceal the true cost of government and distort the public debate on the proper size of government. Some conservative commentators have expressed concern that the VATs proposed by Cruz and Paul might make it too easy for government to grow.23 Other conservative commentators have downplayed that concern and praised the plans' potential contributions to economic growth.24

One way to make the VAT transparent would be to impose the wage portion at the employee level by allowing businesses to deduct wage payments (so that they are taxed only on business cash flow) and taxing workers on their wages. Workers would then see the tax on their pay stubs. Separating the wage and business cash flow taxes also makes it possible to promote progressivity by taxing wages more lightly than business cash flow and providing graduated tax rates and refundable credits under the wage tax. The Bradford X tax adopts that approach.25 The editors of National Review recommended that Cruz modify his plan to tax wages at the worker level.26

E. Implications for Social Security

Cruz and Paul both propose repealing the payroll and self-employment tax. Neither candidate has addressed the sweeping implications of that change for the Social Security program.27

Of the 15.3 percent payroll and self-employment tax, 12.4 percent is earmarked to finance Social Security, and 2.9 percent goes to finance Medicare Part A. The Social Security tax applies to the first $118,500 of earnings. The Medicare tax has no upper cap, and an additional 0.9 percent tax applies on earnings above $200,000 for singles and $250,000 for couples. Part of the individual income tax revenue raised by taxing Social Security benefits is also earmarked to Social Security, and the remainder is for Medicare Part A.

The elimination of the payroll and self-employment tax would necessitate general revenue financing for those programs unless a new earmarking mechanism was specified. The Cruz campaign states that "the current payroll tax system will be abolished while maintaining full funding for Social Security and Medicare" but does not elaborate.28

General revenue financing would have important implications. Spending for each of the two programs is limited to the amount that can be supported by current and past earmarked taxes. For each program, an accounting mechanism called the trust fund tracks the amount that the program is allowed to spend, giving it credit, with interest, for past earmarked taxes that have not been spent. When the trust fund balance falls to zero, spending is limited to current earmarked taxes, triggering automatic benefit cuts.

For Social Security, the trust fund constraint has been a useful way to limit the program's spending. Because the program has its own dedicated funding source, it is kept out of annual budget debates, preventing frequent benefit changes that would disrupt beneficiaries' planning. But the trust fund constraint ensures that the program's long-run spending is kept in line with the amount of payroll and self-employment tax that the public is willing to accept.

The use of general revenue financing would also probably require changes to the Social Security benefit formula. The formula bases each worker's Social Security benefits on the wages and self-employment earnings on which she has paid payroll and self-employment tax. Earnings exempt from payroll and self-employment tax (primarily wages paid to federal government employees hired before 1984 and wages paid to some state and local government employees) are not included in the benefit computation.

After adjusting past earnings to reflect growth in national average wages, the benefit formula averages the 35 highest years of earnings. Workers with higher average wages receive higher monthly benefits, reflecting their larger payments into the program. However, the increase is less than proportional, giving lower-paid workers a higher rate of return on their payroll and self-employment tax payments.

Even if an earnings-based formula was retained after the payroll and self-employment tax was repealed, one detail would have to be modified. There would be no reason for the formula to exclude new earnings by workers in jobs that were exempt from the tax when it existed. Because those earnings would no longer enjoy any tax advantage, they would need to be included in the benefit formula on the same terms as other earnings.

More generally, though, the rationale for the earnings-based formula would be greatly weakened after the payroll and self-employment tax was replaced by a VAT. The formula's payment of higher monthly benefits to workers with higher lifetime earnings is motivated by the larger tax payments that they made into the program. Under the VAT, a worker with higher lifetime earnings would continue to pay more dollars in taxes than a worker with lower lifetime earnings. However, those tax payments would not be visible to the workers or the general public, and they would not be earmarked to Social Security. It would therefore be hard to explain why the higher-paid worker, who presumably has less need for government benefits, should receive a larger monthly benefit than the lower-paid worker.

The benefit formula could be changed to provide all retirees a flat monthly benefit that does not depend on lifetime earnings. Three colleagues and I have developed a budget plan that includes a transition to a flat benefit.29 But any such change would require extensive public discussion. So far, Cruz and Paul have not explained what changes, if any, they would make to the benefit formula.

F. Conclusion

Cruz and Paul's plans to replace much of the federal tax system with a subtraction method VAT could boost investment and long-run economic growth. Unfortunately, the candidates have failed to clearly describe their proposed taxes and the burdens that they would impose on workers.


1 Rand Paul, "Blow Up the Tax Code and Start Over," The Wall Street Journal, June 18, 2015.

2 Andrew Lundeen and Michael Schuyler, "The Economic Effects of Rand Paul's Tax Reform Plan," Tax Foundation blog (June 18, 2015), available at

3 For the Cruz campaign's description of the plan, see "The Simple Flat Tax Plan" (Oct. 28, 2015), available at

4 Cruz, "A Simple Flat Tax for Economic Growth," The Wall Street Journal, Oct. 29, 2015.

5 Kyle Pomerleau and Michael Schuyler, Tax Foundation Fiscal Fact 489, "Details and Analysis of Senator Ted Cruz's Tax Plan" (Oct. 29, 2015), available at

6 Tax rates for individual and corporate income taxes, payroll and self-employment taxes, subtraction method VATs, and estate taxes are customarily quoted in tax-inclusive form. Tax rates for credit invoice VATs, retail sales taxes, and gift taxes are customarily quoted in tax-exclusive form.

7 Pomerleau and Schuyler, supra note 5.

8 Simple algebra explains why the remittances are the same. Let the tax rate be t, the business's sales be S, and its purchases be P. Under the subtraction method, each business remits t*(S-P). Under the credit invoice method, it remits gross tax of t*S but claims credit of t*P, so that its net remittance is t*(S-P).

9 Business cash flow also differs from business profits, which is the business's net capital income minus its interest payments. Cash flow equals profits plus interest payments minus net investment.

10 For further discussion, see Robert Carroll and Alan D. Viard, Progressive Consumption Taxation: The X Tax Revisited 30-33 (2012).

11 For further discussion, see Viard, "Tax Increases and the Price Level," Tax Notes, Jan. 6, 2014, p. 115 .

12 Consider a worker who produces output worth $107.65. Under today's tax system, the employer remits $7.65 payroll tax and pays the worker a $100 wage. Under the Cruz plan, the employer remits $17.22 VAT (16 percent of $107.65) and pays the worker a $90.43 wage. Because 1/0.9043 = 1.1059, the necessary reduction in the real wage can be achieved with a 10.59 percent price increase. A similar calculation reveals that the Paul plan reduces the worker's real wage to $92.04. That reduction in the real wage can be achieved with an 8.65 percent price increase.

13 For example, the VAT would not reduce the real value of current retirees' Social Security benefits. See Viard, "How Would Cardin's VAT Affect Social Security Recipients?" Tax Notes, Nov. 2, 2015, p. 717 .

14 Toder, Nunns, and Rosenberg, "Methodology for Distributing a VAT," Urban-Brookings Tax Policy Center (Apr. 2011) .

15 Pomerleau and Schuyler, supra note 5; Lundeen and Schuyler, supra note 2.

16 The Tax Foundation's description of the model is available at

17 Paul, supra note 1.

18 A transcript of the January 14 debate is available at

19 Paul, supra note 1.

20 Cruz, supra note 4.

21 A transcript of the November 10 debate is available at For further discussion of Cruz's statement, see Viard, "Senator Cruz, VATs Are Paid by People," AEIdeas blog (Nov. 12, 2015), available at

22 Josh Barro, "Rand Paul and the VAT That Dare Not Speak Its Name," The New York Times: The Upshot, June 18, 2015; Howard Gleckman, "Rand Paul's Tax Cut Isn't Quite What It Seems,", June 18, 2015; Catherine Rampell, "Cruz and Paul's Hidden Tax," The Washington Post, Nov. 13, 2015; and Matthew Yglesias, "Ted Cruz Is Even Less Electable Than Donald Trump," Vox blog, Dec. 8, 2015.

23 Chris Edwards, "Ted Cruz's and Rand Paul's Strange Embrace of the VAT," National Review Online, Nov. 3, 2015; Ramesh Ponnuru, "Republicans Learn to Love VAT," Bloomberg View, Nov. 5, 2015; Daniel J. Mitchell, "No to the Value-Added Tax," National Review Online, Nov. 13, 2015; John Hood, "Cruz, Paul Tax Reform Plans Court Disaster," National Review Online, Dec. 23, 2015; and Diana Furchtgott-Roth, "Resist the Seductive VAT," Tax Notes, Jan. 18, 2016, p. 355 .

24 Stephen Moore, "Flat-Tax Plans: All Are Good, None Are Perfect," National Review Online, Nov. 11, 2015.

25 For further discussion, see Carroll and Viard, supra note 10, at 24-33.

26 The editors, "Ted Cruz's Tax Plan Has Merit -- He Should Modify It, For Transparency," National Review Online, Jan. 13, 2016.

27 This discussion draws on Viard, "The Problem With Eliminating the Payroll Tax," U.S. News Economic Intelligence blog, Dec. 28, 2015, available at

28 "The Simple Flat Tax Plan," supra note 3.

29 Joseph Antos et al., "Tax and Spending Reform for Fiscal Stability and Economic Growth," AEI Economic Perspectives (May 2015).

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