Rubio accused Cruz of having a value-added tax, and Cruz denied it. Value-added taxes come in several different flavors, and people can use the phrase in different ways. It can safely be said, though, that Cruz’s business tax is economically very similar to value-added taxes, and in particular is similar in that consumers and wage-earners would bear much of its burden. The plan also has elements that cut the other way: It gets rid of the payroll tax, for example, which would raise wages. The Tax Foundation says that overall, it would lower tax burdens for most people. But the structure of the business flat tax means that it would not lower those burdens as much as you would think if you just focused on the 10 percent flat tax Cruz mentioned.

Rubio noted that this tax burden would be hidden in a way that would make it easier for it to grow over time–a fear conservatives have traditionally taken seriously. For this reason, I’ve suggested that Cruz modify his plan.

Cruz contrasted his plan with Rubio’s by noting that Rubio’s would leave the top income-tax rate at 35 percent, much higher than the 10 percent in Cruz’s plan. But Cruz’s comparison ignores the way his business flat tax would hit individuals. The true top marginal tax rate in Cruz’s plan would be lower than Rubio’s, true, but not that much lower: A better comparison is 35 for Rubio vs. 24.4 for Cruz. And for people lower on the income scale, the comparison turns in Rubio’s favor: The marginal rate for couples making less than $150,000 a year would be 15 percent in Rubio’s plan and 24.4 in Cruz’s. The Tax Foundation estimates that filers in the 40th to the 50th percentile would see about twice as large an increase in after-tax income under Rubio’s plan than under Cruz’s plan.

So Rubio’s tax cut is bigger for people in the middle of the income spectrum–but that also means that it reduces revenues a lot more, and thus would increase deficits a lot more if not coupled with spending cuts.

(disclosure)