Ted Cruz doesn’t want to admit it, but he’s definitely proposing a VAT

Marco Rubio accused Ted Cruz of creating a new value-added tax (or “VAT tax,” as Rubio called it) in his tax plan in a robust exchange at Thursday night’s Republican debate. Cruz insisted that on the contrary his business flat tax is something very different. It’s not entirely clear why the semantics of what you call the tax are important, but Rubio accurately pointed out that “you find that tax in many countries in Europe,” and it’s possible Cruz is reluctant to admit that he’s proposing to imitate an aspect of European public policy.

But whatever Cruz’s reason for denying that his plan calls for a VAT, his plan calls for a VAT. Don’t take my word for it — ask the conservative Tax Foundation, which is rather enthusiastic about Cruz’s tax plan (the foundation says it will lead to a 13.9 percent increase in economic growth) but is very clear that it is a VAT:

Senator Cruz’s (R-TX) tax plan would enact a 10 percent flat tax on individual income and replace the corporate income tax and all payroll taxes with a 16 percent “Business Transfer Tax,” or subtraction method value-added tax. In addition, his plan would repeal a number of complex features of the current tax code.

Later, the foundation elaborates further:

Enacts a broad-based, 16 percent “Business Transfer Tax” or value-added tax. This tax is levied on all business profits, less capital investment. This would include the payroll of business, government, and non-profit institutions, as well as net imports. The tax would exempt from taxation the purchase of health insurance. A business transfer tax is also often known as a subtraction-method value-added tax. While its base is identical in economic terms to that of the credit-invoice VAT seen in many OECD countries, it is calculated from corporate accounts, not on individual transactions.

The good news for Cruz is that VATs are widely used around the world because economists generally regard them as an efficient way to raise revenue. You can easily see why a bold tax reform plan might include one. But it is definitely a VAT.