As the nation turns its focus to the delegate-rich primary contests in Michigan on Tuesday, it’s becoming increasingly clear that the Republican party establishment’s only hope of denying the nomination to Donald Trump will be to hand it to Texas Senator Ted Cruz.
Cruz is second to Trump in the race for 1,237 delegates, and has been polling ahead of rivals Marco Rubio and John Kasich in Michigan, a state that, until recently, was not thought to be winning territory for a very conservative Senator from Texas. He’s also polling second nationally, though far behind Donald Trump.
So while Donald Trump remains the presumptive front-runner, Ted Cruz is clearly the guy who has the best chance of upsetting him. But the debate of the Republican side has become so unmoored from practical debates over policy ideas that there has been little discussion over how America would be different under each president. What, exactly would a Ted Cruz economy look like?
The Tax Code
The most radical aspect of Ted Cruz’s policy platform is his tax reform proposal. He wants to completely eliminate the IRS, corporate taxes, payroll taxes, and institute a value-added tax of 16% and a flat tax on income of 10%.
One of the benefits of the Cruz tax plan is its simplicity. The Tax Policy Center estimates, “that just 2 million of the 45 million filers who would otherwise itemize in 2017 would continue to itemize deductions under the Cruz plan.” That’s mostly because Cruz plans to increase the standard deduction and eliminate all other deductions besides a scaled-back mortgage-interest break and the charitable deduction.
Another benefit is, theoretically, increased economic efficiency. Because the Cruz plan eliminates taxes on investment income and allows businesses to deduct their capital expenditures, it would encourage businesses and individuals to save and invest more. The Tax Foundation argues that this would lead to much higher GDP and incomes for Americans of all income levels, provided enough spending cuts are made to finance the tax cut. But the economics field is split over what effect tax rates have on economic growth, and the Tax Policy Center is much more pessimistic about the plan’s ability to deliver faster growth and higher incomes.
One thing is for sure, however, and that’s that folks who are nearing retirement today would be negatively affected by the Cruz tax plan. That’s because it would shift the tax burden away from workers and to consumers. Folks who have worked their whole life and have paid federal income taxes their whole life would, all of a sudden, be faced with a retirement in which they would pay a very hefty federal sales tax on everything they buy. For those of us still paying income tax, this would be offset by lower income taxes. But the retired, or nearly retired, would not be so lucky.
Furthermore, the Cruz plan would likely require massive, unprecedented spending cuts. Here’s how the Tax Policy Center puts it:
Congress would need to cut projected program spending by nearly 18% to prevent the plan from adding to the deficit in 2025. If Congress eliminated all defense spending (about $711 billion), it could not meet this goal. It would need to cut discretionary spending by 67 percent, or about 34 percent of all Medicare and Social Security spending, to offset the direct revenue loss.
Entitlements
Though Ted Cruz’s tax plan would almost certainly necessitate deep cuts to entitlements like Social Security and Medicare, Cruz has offered few specifics on how he would manage to cut both taxes, and defend those popular programs. He has pledged his support for Medicare, saying, “There is a broad, universal consensus that Medicare is a fundamental bulwark of our society,” and that “we have got to preserve and reform Medicare.”
He’s also argued that we should gradually raise the retirement age at which people can receive Social Security and to slow the rate at which benefits grow. For people who are not “at or near retirement” Cruz wants to set up individual retirement accounts similar to how George W. Bush tried to reform the program a decade ago.
Immigration and Labor
The Republican Party usually keeps a laser focus on reforms that would help boost economic growth, as faster growth helps solve a lot of different problems, from budget deficits to the strain of growing economic inequality. But Ted Cruz, like other Republicans, has taken a hard line against immigrants, despite the overwhelming evidence that growing the labor force through immigration helps boost economic growth and fortifies government budgets.
Cruz wants to build a border wall that “works,” triple border security, as well as put in place other types of security measures, like biometric tracking. He also would like to put the nation’s skill worker H-1B visa program on hold, and “halt any increase in legal immigration so long as American unemployment remains unacceptably high.”
Cruz’s hardline on immigration, combined with his withdrawing support for the Trans-Pacific Partnership trade deal, is evidence for Coins2Day editor Alan Murray’s thesis that the big loser this election cycle is big business. Although America’s largest companies are spending as much as ever on lobbying, they’ve been largely ineffective at getting any of their biggest priorities pushed into law. It doesn’t appear that a Ted Cruz presidency would change that dynamic.
Regulation
On the other hand, big business would probably be quite fond of the Ted Cruz stance on regulations. He favors passing the REINS act, which would require an up or down vote from Congress on any proposed regulation with an impact of $100 million or more—a radical departure from how the executive branch implements regulations today. This would represent a huge shift in power from the permanent bureaucracy to the elected legislature, presumably giving those with lobbying money to throw around a much bigger say in how the federal government relates to business.
Some economists, like Nobel Prize winner Edmund Phelps place great emphasis on the role of increased regulation in slowing economic growth. Other economists are more skeptical, arguing that it is difficult to measure the effects of business regulations, and that certain regulations can actually increase growth. But if Ted Cruz wins the presidency, and the Congress remains in Republican hands, expect the federal government to take a weed wacker to extant regulations and slow the growth of new ones. This would provide one of the best natural experiments on the effects of regulation on economic growth economists have yet seen.
