By collecting VATs from businesses, and not listing them on customer receipts, the true costs for workers and consumers are hidden. The VAT also taxes labor and capital on top of existing burdens.
You can argue that these VATs are low, at 14.5 percent for Paul and 16 percent for Cruz. But like mushrooms and mustard seeds, these rates flourish once planted. (See Europe.) The Tax Foundation estimates that more than 70 percent of total taxes would eventually come from these hidden business VATs.
Simple and low flat-tax rates are a terrific idea. But not if supported by a VAT. And down through the years I have argued that if you want a sales tax, a consumption tax, or a VAT, you need to first repeal the 16th amendment, which launched the income tax. Otherwise, in the name of flat-tax reform, I fear we'd be opening the door to an even larger Leviathan.
This is why I prefer the more straight-forward corporate tax cuts of Jeb Bush and Donald Trump. They would lower the business rate to 15 to 20 percent, below China's 25 percent, and would permit small S-corps to pay the lower C-corp rate.
And if you added in immediate full-cash-expensing tax deductions, a low-penalty-rate repatriation of U.S. cash parked overseas, and a move to a territorial tax system, you'd do more to stimulate the economy than anything else. And if you coupled that with vastly reduced regulatory burdens, you could produce 4- to 5-percent growth for at least the next 10 years.