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Ted Cruz is even less electable than Donald Trump

The Republican Party establishment has a bad case of Trump-Induced Terror these days, but there's an even more plausible candidate in the race who's running on an even more unelectable agenda.

May I introduce to you Texas Sen. Ted Cruz.

People know that Cruz is extreme. But few people fully recognize exactly how unpopular the Cruz policy agenda is likely to be once it is exposed to the light of day.

In an era when no politician of either party wants to cut retirement benefits for current seniors or raise taxes on the middle class, Cruz has quietly stumbled into proposing a gigantic tax increase on middle-class retirees. The media hasn't noticed yet, and liberal groups don't seem all that eager to point it out — perhaps because they're hoping to save their ammunition until after Cruz is actually the nominee. Cruz's appeal is rooted in his deep understanding of the GOP base and sophisticated grasp of the modern media landscape. But he's never run in a meaningfully contested general election of any kind, and trying to do so on an anti–middle class, anti-elderly policy agenda is extraordinarily unlikely to succeed.

Ted Cruz is quietly running on a 19 percent sales tax

If you're not paying close attention, Cruz's tax plan can just look like a more extreme version of every other Republican tax plan — a big, budget-busting tax cut for the wealthy. But in reality, it contains an idea so obviously politically toxic that his entire agenda for selling it seems to be to obscure the fact that he's proposing it.

But let's be clear: Cruz is calling for a 19 percent federal sales tax that would apply to all purchases of goods and services made in the United States. This is possibly the single least voter-friendly idea one could imagine.

It's so toxic that he doesn't call it a 19 percent federal sales tax at all.

"For businesses, the corporate income tax will be eliminated," Cruz writes on his website. "It will be replaced by a simple Business Flat Tax at a single 16 percent rate."

This sounds like Cruz is calling for the replacement of the current loophole-ridden corporate income tax with a new flat corporate income tax featuring a broader base and a lower rate. But that's not what Cruz is proposing at all. His "business flat tax" is a sales tax, not a corporate income. And it's a 19 percent sales tax, not a 16 percent one.

The Tax Foundation, a center-right think tank that believes in giving conservative tax plans extremely generous "dynamic" scores, explains that Cruz's business tax is "often known as a subtraction-method value-added tax" and "its base is identical in economic terms to that of the credit-invoice VAT seen in many OECD countries."

Okay, so Cruz's business tax is a value-added tax, but what's a value-added tax? For that, it's useful to turn to Curtis Dubay, a Heritage Foundation tax expert, who explained it in 2010.

"Consumers would experience no difference between a national sales tax and a VAT," Dubay writes. "A sales tax and a VAT designed to raise equal amounts of revenue would raise the final price of purchases by roughly the same amount." The difference between a VAT and a sales tax is in how they are collected — Cruz's version would be paid directly to the federal government and invisible to consumers — not in where the burden actually lies.

Cruz's 16 percent is really 19 percent

Why does Cruz say he has a 16 percent tax but I say he has a 19 percent tax? For that, let's return to the Tax Foundation. The foundation explains in a footnote that Cruz is specifying his 16 percent tax rate "in tax-inclusive terms."

That means that under the Cruz plan, something that costs $1 today would start to cost $1.19.

The way we normally talk about taxes in the United States, that is a 19 percent tax.

What Cruz wants to say is that it's really a 16 percent tax, since 19 cents (the tax) is 16 percent of the $1.19 total price paid. This is how some European governments characterize their tax system, because it makes high European taxes sound relatively low. It's a bit ironic to see an extremely American politician pulling out this trick, but this is still the United States of America, and Cruz is talking about a 19 percent tax.

This is a conservative fantasy plan

Replacing large swaths of the existing tax code with a high national sales tax is so politically ridiculous that most people are probably completely unaware of the argument for doing it.

But conservative policy experts are, at least in principle, enthusiastic about this idea. The Tax Foundation notes that raising the bulk of federal revenue through a sales tax means that "the taxation of investment would significantly decline, which would greatly increase incentives to save and invest."

Inequality.org

To liberals, this is a terrible idea, because it means that the lion's share of the benefits of Cruz's plan would flow to the small number of people rich enough to be deriving a significant share of their income from investments. Ten percent of the population owns almost 85 percent of the financial assets in the United States, while the bottom 75 percent of the population owns less than 4 percent.

But proponents think Cruz's approach would unleash a torrent of economic growth. The Tax Foundation believes the Cruz plan would generate a 13.9 percent increase in American GDP, powered by a 44.9 percent increase in capital investment.

A lethal agenda for the elderly

Cruz's sales tax would, on its own, be a devastating blow to the finances of poor and middle-class Americans. But Cruz largely neutralized that by eliminating payroll taxes and endorsing a significant boost to the earned income tax credit. Other analysts may disagree with this take, but the Tax Foundation analysis suggests that people at all income levels will be paying less in taxes under President Cruz. How much less ranges from 29.6 percent for the top 1 percent to a modest 1 to 4 percent for people in the bottom half of the income distribution.

The downside is this will leave a $3.7 trillion hole in the federal budget over 10 years.

But the true political disaster of the Cruz plan is its impact on the elderly. Retired people, by definition, don't work. They are not paying payroll tax, and they will not gain any money from an increase in the EITC.

On average, the elderly pay less than 9 percent of their income in taxes, and they spend more than 100 percent of their after-tax income. Cruz's proposed 19 percent tax on that consumption would hammer this group, especially its lower-income members. No politician in American history has ever been so crazy as to propose a 19 percent cut in Social Security benefits, but Cruz's tax plan would have an even more adverse impact on retirees' living standards. Meanwhile, in his 2012 Senate campaign, Cruz endorsed cutting cost of living adjustments for Social Security beneficiaries, and his current campaign has revived Bush-style privatization schemes that the rest of the party abandoned after they proved politically disastrous.

This would be wild stuff for any politician, but given the modern-day Republican Party's reliance on the elderly vote, it's a total disaster. Cruz deserves kudos, to an extent, for following his ideological commitments where they lead him regardless of the political implications. But it's a completely unworkable electoral strategy.

Some other Ted Cruz facts

Republicans concerned about Donald Trump's electability might also want to note that:

A year ago, the fundamentally unelectable nature of Cruz was well-understood, and it was universally believed that for that reason the Republican establishment would never let him win. Trump's rapid rise and astonishing resilience have called into question the establishment's ability to actually control events. But Trump has also created a gravitational distortion in how we view the candidates. Cruz's résumé — which includes winning an actual Senate election, plus experience in jobs in the federal judiciary and state government — looks downright conventional by comparison.

But conventional isn't the same as electable by any means. Trump's actual policy positions are generally more moderate than Cruz's, and his support within the GOP primary electorate does not look particularly ideological. Trump as nominee would certainly be a risky (and probably disastrous) leap into the unknown. But Cruz as nominee would be a leap into something we've actually seen quite clearly before in 1964 and 1972 — a factional candidacy by a senator from the fringe of his own party caucus who gets drubbed on Election Day.