HH: I’m so pleased to begin hour number three with United States Senator Ted Cruz. Ted Cruz, welcome to the program, great to have you.
TC: Hugh, my friend, always great to be with you.
HH: Now I am not going to rehash the von Hindenburg debate. That one’s in the books, and we know what went wrong.
HH: Although I must say when I see you going around saying you want to have a debate with Rush, Sean and Mark Levin, I get a little, my feelings are a little hurt, Senator.
TC: Well, but let’s be clear. The great Hugh Hewitt has already moderated one, and as I have said publicly, you got far too little airtime. I’d rather you were asking every question instead of the handful they gave you.
HH: Well, I’m going to try and right the ship from last week by sticking to economics, because you published on the day of the disastrous debate a tax plan in the Wall Street Journal, which really ought to have driven the debate that night. Let’s tell people about the central aspect of the Ted Cruz tax plan.
TC: Well, it is a simple flat tax. And so for a family of four, the first $36,000 in income, you pay zero taxes – zero income tax, zero payroll tax, zero nothing. Beyond that, everyone pays a flat 10%, and that applies across the board so that the hedge fund billionaire pays the same rate as his secretary instead of paying less, as they often do now.
HH: Now that is…
TC: In addition to that, go ahead.
HH: That has great appeal. I am curious, though, about the VAT tax side on businesses, so I thought you were going to get there next, so I’m sorry for interrupting you.
TC: That’s exactly where I’m going. In addition to the 10% flat tax on individuals, there’s a 16% business flat tax. Not it applies to all businesses, whether giant corporations or small mom and pops, and it’s simply, it is business revenue net capital investments and expenditures. And those two taxes together fund the entire tax system. And again, one of the great advantages of the business flat tax right now, you have giant corporations that have armies of accountants and lobbyists that sometimes end up paying little or no taxes. With a 16% business flat tax, every company pays the same tax rate. It is fair across the board and applies uniformly to everyone.
HH: What is the revenue impact of the Cruz tax plan? Is it revenue neutral, revenue positive, revenue negative?
TC: It is not revenue neutral, so that the non-partisan Tax Foundation scored the plan, as they have for everyone whose introduced their plan in a static picture, which is assuming contrary to reality that there are no growth effects. This is a $3.6 trillion dollar tax cut, so it is a tax cut from current rates. When you factor in economic growth, and over ten years, this ends up reducing tax revenue about $760 billion dollars, so it is less than a trillion. It is, in terms of the impact on the budget, much, much smaller than many of the other plans introduced by other candidates. But the thing that is powerful about this, Hugh, is the growth effect. The Tax Foundation shows that this 10% flat tax, which allows you to abolish the IRS, move to a simple flat tax, would produce 4.9 million new jobs over the next decade, that it would increase capital investment by 44% over the next decade, that wages would go up, and critically, for every single income bracket, from the very poorest to the very richest, every income decile would see at least a 14% increase in after-tax income, which to put specifics on that, if you’re a single mom, you’re making $40,000 a year, struggling to provide for your kids, a 14% increase means an additional $5,600 dollars a year after taxes. That is real money to transform the ability for you to provide for your family, and I think it’s why a simple 10% flat tax that abolishes the IRS is such a powerful growth machine.
HH: Now Senator Cruz, coming up after the break, I’m going to be joined here at the Kirby Center by Morton Kondracke and Fred Barnes. They’ve written a new book about Jack Kemp called The Bleeding Heart Conservative Who Changed America. They’ve pointed out in this book that the Kemp-Roth tax reform of the 80s, it took a couple of years to kick in. It was postponed, in some respects.
HH: Will the deficit go deeply red in the first couple of years of the Cruz tax plan before those so-called growth effects kick in?
TC: It will not, and listen, this is designed to occur in conjunction with regulatory reform, in conjunction with pulling back federal regulations and sound money. And if you look to the Reagan model, when Reagan did that, part of the reason it took a while for the Reagan tax cuts to take effect is they were phased in. So they didn’t really kick in until ’83. And by ’84, the economy was booming, growing 7.2% a year. My simple flat tax was designed in close consultation with Art Laffer, who as you know, was Reagan’s economic advisor…
TC: …who helped designed those, the Reagan tax cuts. And this is a plan designed to get back to the kind of booming economic growth that not only gets more and more people jobs, not only raises their wages, but ends up increasing government revenue, because a booming economy means you pay less on welfare, less on unemployment, less on food stamps, and you’re making more on taxes from people actually working and providing for their families.
HH: Now let me do another, make up for another omission from the CNBC debate. Nobody was asked about the TPP.
HH: Where does Ted Cruz stand on it, and how does it divide the field, to your understanding?
TC: Well, there’s no doubt that TPA and the TPP will divide the field. I am going to wait to read the actual text of the TPP, which has not been handed over, the Trans-Pacific Partnership, to see what is in it. I will confess a considerable degree of skepticism right now. I believe in free trade, but I voted against TPA, and that’s an area where there’s a difference. So for example, Marco Rubio, who’s in the Senate, he voted in favor of TPA. I voted against it. So there’s a clear difference in terms of records among the candidates on this. And I voted against TPA because I was concerned number one about President Obama abusing his power to use trade agreements to undermine our immigration laws, and number two, because wrapped up with the trade agreement was, I believe, a corrupt deal to reauthorize the Export-Import Bank, which is a classic example of corporate welfare and cronyism. And I think we should pursue free trade, but we should do so with American interests first. And in particular, if you look at countries like China that are engaged in currency manipulation, that are blocking our imports from coming into their country, I think we need a far more vigorous president open up foreign markets, and to make sure we’re competing on a level playing field.
HH: Now Senator Cruz, you know you and I disagree on Ex-Im, but this isn’t about the moderator or the questioner. It’s about the candidates, so let me close by asking you, I’m going to tip my hand on the December debate if it still hangs together, and I think it will. I am concerned about our fleet. There’s a new report out from the Center for a New American Security called Retreat And Range, about the F-35’s inadequacy to support our carrier fleet. I asked Donald Trump about it last week. I asked John Kasich about it. What do you think about the F-35 and our naval budget? And with the Ted Cruz tax plan, even with growth, where does the Defense budget go under a President Cruz?
TC: Look, I think we need to modernize our military budget. One of the worst things that has happened under the Obama presidency has been the dramatic downgrading of our military, the downgrading of our readiness, the downgrading of our missile defense, the downgrading of our nuclear capacity, the failure to invest in R&D in new weapon systems, the failure to adequately ensure we have a sufficient number of soldiers and sailors and airmen and Marines, and I think that is going to be one of the most critical priorities, if I am elected president, is rebuilding the military. And going back to the Reagan analogy for a minute, that of course was, front and center, Reagan’s priorities in the 1980s, and it was because of his tax cut and regulatory reform, and the booming economic growth that resulted, that the government had the revenue to rebuild the military and win the Cold War. And let me note just going back for one second, if I can, Hugh, to the question you asked previously, because it actually connects. When you talk about TPP and China and the tax plan, one of the real virtues of my simple flat tax is the 16% business flat tax is border adjustable, which means if a U.S. manufacturer is exporting goods, they don’t pay that 16%, which gives our manufacturers a tremendous advantage in exporting good, that they don’t pay that. And on the flip side, all imports pay that 16% business flat tax, so that they compete on a fair playing field with the U.S. producers who are selling in the American market. That will have a dramatic impact expanding our exports, and helping U.S. manufacturers compete more effectively by putting American companies on a level playing field. And this is all about eliminating cronyism and eliminating the power of Washington, and treating everyone fairly and equally.
HH: Now so 10 seconds, Senator, the F-35, are we going to buy 3,000 of them?
TC: Look, I think we need to invest in all of the tools necessary to keep our nation safe.
HH: Senator Cruz, it’s a great plan. I hope we got more done in ten minutes than you did in two and a half hours on CNBC. I appreciate the time.
End of interview.