Cruz tax plan would slash U.S. revenue, favor wealthy: analysis

[February 17, 2016]  WASHINGTON (Reuters) - A tax plan proposed by Republican presidential candidate Ted Cruz would cut federal revenues by $8.6 trillion over 10 years, adding substantially to the debt, according to an analysis published on Tuesday by a nonpartisan research center.

Cruz's plan, unveiled in November, would create a flat 10 percent individual income tax that with other changes would mainly benefit high-income households, the study by the Washington-based Tax Policy Center found. (http://tpc.io/1ToCN7M)

Other changes include repealing the corporate income tax, as well as payroll taxes for Social Security and Medicare, and estate and gift taxes; increasing the standard deduction and eliminating most other deductions except for mortgage interest and charity; and adding a broad-based 16 percent value-added consumption tax.

"The plan would cut taxes at most income levels, although the highest-income households would benefit the most and the poor the least," the Tax Policy Center said.

The value-added tax proposed by Cruz, a Senator from Texas who won the Iowa caucuses among Republicans last month, would replace only 70 percent of the costs of the tax cuts, according to the center.

Cruz is a favorite of the conservative Tea Party movement who helped provoke a 16-day government shutdown in September 2013 with his opposition to a spending bill. The goal was to gut the healthcare law known as Obamacare.

The TPC analysis noted that high-income taxpayers would see an average tax cut in 2017 of about $6,100 or some 8.5 percent of after-tax income, while those with annual incomes over $3.7 million would see an average cut of nearly 29 percent, or more than $2 million.

"Households in the middle of the income distribution would receive an average tax cut of $1,800, or 3.2 percent of after-tax income, while taxpayers in the lowest quintile would receive an average tax cut of $46, or 0.4 percent of after-tax income," the TPC said.

The changes would "boost incentives to work, save and invest," but the lower revenue would require unprecedented cuts in government spending to avoid borrowing that would raise interest rates and discourage private investment, it said.

The Tax Policy Center is a joint venture of the Urban Institute and the Brookings Institution, two Washington-based think tanks. It has issued studies of other candidates' proposals.

(Reporting by Eric Walsh; Editing by Jonathan Oatis)

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