Posted on 06/07/2010 8:08:27 AM PDT by Kaslin
Democrats in Washington are struggling to find a solution to the huge deficits created by the Obama Administration spending spree. The Commission on Fiscal Responsibility and Reform recently had its first meeting, and they are widely expected – after the November election, of course – to recommend a national VAT tax as the best way to solve the revenue crisis. The problem is that we have a VAT already.
For those not familiar with the term, a Value Added Tax (VAT) taxes the estimated market value added to a product at each stage of manufacturing or distribution. It’s similar to a sales tax, but it’s built into the price of the product (whereas a sales tax is added onto the product’s final sales price). The great thing for the political class is that the VAT is a stealth tax. You don’t know you are paying it because it’s not separately itemized.
But we already have a tax like that – it’s called the Corporate Income Tax – and, like all taxes imposed on corporations, it is passed through to the buyers of their products and services. Taxes are an expense to a corporation just like rent, employee salaries, and office supplies, and corporate profits are realized only after all expenses are paid. Corporations calculate their projected profits backwards, first by determining their expected revenue (based largely on competitive market conditions and public perception of their products) and then subtracting their anticipated expenses. To put it simply, corporations do not pay taxes – customers do.
And do we ever have a doozy of a corporate tax. Of the 30 top industrial countries, the United States has the second highest corporate tax rate, exceeded only by Japan. That is not the full story. The U.S. (unlike other countries) not only has a federal, but a state income tax. In 24 states, the combined state and federal tax exceeds the single corporate rate in Japan. That means in about half the country, the corporate tax rate is the highest in the world.
Let’s say you’re the CEO of a large corporation. You understand that corporate taxes are costs that are added into the mix just like wages and health insurance. You have to compete with companies developing products all over the world. You look around and see that you can have your headquarters in the U.S. and pay an average 39.7% corporate tax rate, or you can move your company (and many well-paying jobs) to Ireland, which has a 12.5% rate. You can now charge less for your products than your competitors in New Jersey, Massachusetts, or Pennsylvania, each of whom pays a combined rate of over 41%. Are you keeping those good American jobs at home or moving them to stay competitive?
Speaking of health insurance, during the recent health care debate, there was a lot of discussion about how high health care costs were causing companies to lose out to foreign competitors. Where is the same discussion about corporate tax rates? They are certainly making American companies non-competitive, so why no discussion about cutting those rates? Could it be that one expands government and the other is perceived to cut government?
Yet that is a false trade-off. If we cut corporate rates, we would create more jobs and attract more companies to America, causing even more job creation and in turn more government revenue. But some left-wing political elements see corporations as evil and want to punish them. They feel that corporations are not paying their fair share already and should kick in more. What a foolishly naïve understanding of today’s global marketplace, where companies can move between nations just as easily as they move between states.
The business-bashers in Washington also fail to realize that corporate taxes fall into the most evil class of taxes -- regressive. Because corporations simply pass the costs on to their customers, the taxes fall disproportionately on the backs of the less fortunate citizens of the country. The working stiff is bearing the same share of the burden of Gillette’s tax bill as the millionaire when he buys his shaving cream or blades. Where in the left-wing bible does that make sense?
Corporate taxes are just another example of the left’s misguided economic policies based on their perception of winners and losers; good and evil. Congressman Eric Cantor and Senator John McCain have proposed cutting federal corporate tax rates to 25%, which is a start. They understand the current policy just causes the little guy to lose jobs and bear the costs passed to him. In fact, we need to enact even greater cuts, but one step at a time. After the fall elections when the discussions about putting the VAT in place will inevitably heat up, you can now tell the foolish backers of it that we already have one. Let’s see how they react to that.
the VAT, teh Fair Tax are merely offering the government other pockets to pick. if anybody thinks for a minute that congress is going to get rid of the IRS, I have a nice bridge in brooklyn I can sell, cheap.
lower the rates of the corporate tax but close the special interest loopholes.
The only thing I like about the Corporate tax is that EVERYONE pays it (poor people just dont know it or see it)
Those “fair tax” people make me insane with their ‘tax ionclusive’ tax rate specifications and their ‘rebate’ to poor people making under XXX per year.
That would introduce the single easiest vote-buying scheme in the USA- as each politican tried to out-promise their opponent on how much ‘rebate’ they would give to the poor.
Has anyone really crunched the numbers to find out how many jobs would be lost? All those Tax Lawyers, Accountants, and of course IRS, cut in what? 1/32?
It sounds like a VAT would serve to drive even more manufacturing offshore.
teh IRS isn’t going go go anywhere. congress gets too much use from it, and the income tax isn’t going to change. all these new proposals will do is point out other pockets for the government to pick, to feed the beast.
the call to reduce the IRS is part of the smoke and mirrors of these proposals. no congresscritter would ever hurt the IRS - they love the revenue stream too much.
This is not exactly in concert with the article but I want to examine the premise.
I have seen articles that detailed the amount of taxes included in the retail price of damn near everything you buy.
You can readily tell these are dated but I feel safe in assuming the taxes have not decreased.
• Taxes account for 35 cents of the cost of a $1.14 loaf of bread.
• 18 cents of a 50-cent can of soda go toward taxes.
• 72 percent of the cost of a 750-ml bottle of liquor goes toward taxes.
• Taxes for an $80 hotel room average 43 percent.
• Taxes account for $63.60 of a $159 airline ticket.
• A $153.09 monthly utility bill consists of $39.35 in taxes.
There are plenty of unexpected taxes that raise the price of goods and services -- sin taxes, import duties, user fees and excise taxes on things as varied as gas guzzlers, firearms, communications services and air travel.
The less visible a tax is, the less likely taxpayers will be aware of it, unsettled by it and advocate against it.
•The next time you find buried treasure, remember to report it as regular income.
•Even if you're so broke that creditors have forgiven part of your debt, you're not off the hook. The forgiven portion of your debt is "income" and may be taxable as such. Note that there are exceptions if the debt was secured by your principal residence or you declare bankruptcy or are insolvent at the time.
•If you take a bribe or steal property, it's income unless you give it back before the tax year is over. Just a tip.
Will a Value Added Tax replace or be in addition to the hidden taxes already in place?
American University's Pike says the United States is the only industrialized country that does not have a value-added tax, which taxes all consumer goods and services at each step of the manufacturing process.
"A value-added tax could replace all these nickel-and-dime annoyance taxes," he says. But it also would level the playing field so everyone would be taxed for buying products and not just specialty items.
Under a system of value-added taxes, each time a company handles a product on its way from raw material to finished good, it pays a tax on the increased value. Ultimately, all those taxes are reflected in the retail price of a good or service.
Of course, that makes a VAT the ultimate hidden tax. Keep an eye on Congress. Our representatives are currently looking into the possibility of a VAT to raise additional revenue.
““Wealth” has to be produced before you ‘redistibute’ it.”
This seems to be the element of capitalism that is beyond understanding for many progressives, including the president. They act as if wealth or income are just “there” and the only decision that must be made is how to split up the pie. They seem not to grasp that every dollar shifted from taxpayers to nontaxpayers shrinks the size of the pie by diminishing the incentives to work in the first place. Every dollar transferred costs the economy about 30 cents in lower output—an efficiency loss that is entirely overlooked by their preoccupation with “fairness.”
Reagan so wiely observed that we are not trillions in debt because we did not tax enough, we are trillions in debt because we spent to much.
One thing that I think will happen is that Obama’s tax-focus will blow up on him. He looks more and more like a Ceaser when he puts draconian tax laws in effect. There is something to be said aabout an underground economy...it workds well in Italy...when things are tough.
Obama looks like a petty tyrant.
The author is wrong. We do not have a VAT although many states have some form of inventory tax. A VAT is a vast new, complex tax scheme. Its impact may be similar to a corporate income tax but it is clearly a different tax scheme. The rats are somewhat sour on corporate income taxes because taxes vary with profits. The rats want to strangle the goose without regards to profits. When production falls, the rats will modify the VAT rate to collect more taxes on less production.
The author is also wrong that corporate income taxes are regressive. Never fall into the trap of regressive taxation. Corporate income taxes hit all consumers about the same. The left does not like corporate income taxes because they cannot exempt 50% of the population from indirect taxation and force the top 10% or so to pay most of the indirect taxes.
Now that i think about it, I LOVE the corporate tax most of all.
Idiots (the same one who vote for those evil rich people to pay taxes) are too stupid to know that THEY pay corporate taxes in the form of higher prices.
And they will actually vote more and more for those ‘evil corporations’ to pay more taxes!!
Why aren’t liberals onto this???
They can get poor people to tax them selves un-knowingly!!! and get a percentage of ALL the populations income, and yet still let the enterprenuers make and generate real jobs so that they can get even more tax money
oh wait... liberals are pretty stupid themselves
“The only thing the VAT would do is give liberals and Rhino’s more money to spend. It won’t help the deficit one bit.”
We are trying to get rid of ours.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.