Ted Cruz’s Coming Economic Boom

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Peter Ferrara Contributor
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In 1980, Ronald Reagan campaigned on a four point economic recovery plan. First, reduce tax rates, to increase incentives for job creation, investment, business start-ups and expansion, and wage growth due to the resulting increased demand for labor and increased productivity. Even liberal Keynesian economics holds that tax cuts are pro-growth.

Two, reduce regulatory costs and barriers to business, which can act as further tax cuts. Three, reduce federal spending, to reduce the government’s drain on the private sector. And four, restrain monetary policy to restore a stable value for the dollar.

After Reagan led adoption of those policies in 1981, by late 1982 the economy took off on what developed into an historic, 25 year, economic boom, which did not end until late 2007. The top tax rate of 70 percent when he entered office was reduced all the way to 28 percent, with only one more rate of 15 percent for the middle class. Inflation, which had soared to double digits in the 1970s, was cut in half by 1982, and cut in half again by 1983, never to be heard from again to this very day.

During the first 7 years alone, the economy grew by almost one-third, the equivalent of adding the entire economy of West Germany, the third-largest in the world at the time, to the U.S. economy. Nearly 20 million new jobs were created during the recovery, increasing U.S. civilian employment by almost 20 percent.

As Professor Henry R. Nau of George Washington University explained in the Wall Street Journal on January 26, 2012,

“the U.S. grew by more than 3% per year [in real terms] from 1980 to 2007, and created more than 50 million new jobs, massively expanding a middle class of working women, African-Americans and legal as well as illegal immigrants.  Per capita income increased by 65%, and household income went up substantially in all income categories.”

[crscore]Ted Cruz[/crscore] is campaigning today on an updated version of that same four point economic recovery plan. His tax reform proposal would scrap the current income tax code entirely, and replace it with a Simple Flat Tax with the same 10 percent rate for all forms of personal, individual income. That same 10 percent rate would apply to wages, profits, capital gains, dividends, rent, and interest income. No one would be able to claim that billionaires are paying lower tax rates than their secretaries, or that the system is rigged to favor the rich over the middle class.

The corporate income tax would be abolished, and replaced with a 16 percent business flat tax. That business flat tax would be border adjustable, which means all exports would get a tax refund for taxes paid in producing the goods, while all imports would be subject to the 16 percent tax in full. This would give American manufacturing a big advantage in all international trade.

That business flat tax also would include immediate expensing, or deductions, for the costs of plant and equipment, and all other capital investment. That promotes investment in worker productivity, which is the foundation of rising wages, and in businesses providing good paying, blue collar jobs, like heavy industry, mining, energy, farming, ranching and manufacturing. But no more corporate welfare, special interest, credits and deductions.

Each worker would also enjoy a Universal Savings Account, where any adult could save $25,000 a year with taxes deferred, like in an IRA, which could be used at any time for any purpose. That means all savings for the middle class would be tax exempt.

These two flat taxes generate enough revenue that the payroll tax, the biggest tax for the poor and the middle class, would be abolished as well, with Social Security and Medicare financed in full from the two flat taxes with no deficits. The plan includes a $10,000 standard deduction and a $4,000 personal exemption, which means the first $36,000 in income each year for a family of four would be completely tax exempt, from income and payroll taxes. The plan expands and modernizes the Earned Income Tax Credit, and retains the Child Tax Credit. So altogether, this new system is rigged to favor the poor and the middle class.

Cruz’s tax reform would also abolish the death tax and the Alternative Minimum Tax, as well as the Net Investment Income Tax of 3.8 percent and the Medicare surtax of 0.9 percent, both imposed by Obamacare. This tax reform is not designed to be revenue neutral, because Cruz is running to make government smaller, not to raise the same taxes to pay for the same spending. The non-partisan Tax Foundation scores the reform dynamically as a tax cut of $768 billion over the first decade.  

The Tax Foundation further scores Cruz’s tax reform as increasing capital investment by 43.9 percent, creating nearly 5 million new jobs, and growing wages by 12.2 percent. That would increase real economic growth over the next decade by nearly 14 percent more than under current tax policies.  The after tax income of all workers would increase, by 21.3 percent on average. Even those in the bottom 20 percent of the income ladder would see income increases of 15.3 percent on average.

Taxpayers could file their income taxes under this simple tax system on a postcard, which Cruz argues means that we can abolish the Internal Revenue Service as we know it.

Cruz would sharply cut back on regulation by repealing and replacing Obamacare with Patient Power, consumer choice health care. That means both employers and individuals buy the health insurance of their choice, with no employer mandate or individual mandate dictating to workers and employers what health insurance they must buy.

That deregulation would also include liberating energy producers to make America the world leading producer of oil, natural gas and coal. President Obama’s delusional global warming fantasies would be ended the same way the American people ended Jimmy Carter’s energy crisis fantasies, by voting Carter out and Reagan in. That replaced Carter’s energy shortage with over 20 years of abundant, low cost, oil, gas and coal production.

America’s financial industry would be liberated to finance the new boom with both business and consumer loans, by repealing excessive Dodd-Frank overregulation. Cruz also supports the REINS Act, which would require Congressional approval for any federal regulation imposing more than $100 million in costs on the private economy.

Cruz has also proposed specific spending reductions that would abolish four federal departments, plus the Internal Revenue Service, and 25 more named federal agencies, and other policies saving $500 billion over 10 years. He would abolish the Department of Energy, which President Obama has shown can be used to reduce rather than increase U.S. energy production, and the Department of Commerce, a hotbed of corporate welfare handouts to crony socialists posing as business moguls.

Cruz would also abolish the Department of Education, which interferes with the education function properly belonging in our federalist system to the state and local governments closest to the people. Federal financial aid for education would be sent back to the states in block grants.

Cruz would abolish as well the Department of Housing and Urban Development, which has long been a hotbed of corruption, criminally prosecuted even during the Reagan years. This department has only managed 50 years of decline and fall for America’s inner cities. Its housing aid and other public assistance programs should also be sent back to the states, as part of a general initiative to return welfare to the states, which would save trillions more. Repealing and replacing Obamacare would save trillions as well.

Cruz has raised as well fundamental reform of the Federal Reserve, to restrict its wild monetary policy discretion by firm rules holding its course to maintaining a stable dollar. He suggested a commission to determine whether that should include a link to gold. Such guaranteed dollar stability would further draw investment from across the entire globe, as investors would know they would be paid back in dollars as good as the dollars they invested.  Indeed, as good as gold.

Under Obamanomics, America has never seen a full recovery from the financial crisis, even though America’s historical record has always been the deeper the recession, the stronger the recovery. As Reaganomics proved, Ted Cruz’s economic growth plan is well-designed to liberate America’s economy for that long overdue jobs and economic growth breakout.  

Peter Ferrara served in the White House Office of Policy Development for President Reagan, and as Associate Deputy Attorney General of the United States under President George H.W. Bush. He is the author most recently of Power to the People: The New Road to Freedom and Prosperity for the Poor, Seniors and Those Most in Need of the World’s Best Health Care, published by the Heartland Institute.