Why do they call a ‘value added tax’ ‘value added’? How does taxing something add ‘value’ to it?
Why don’t they call it a ‘tax accumulated tax’? (Although in this article Morici says that businesses get to deduct their own sales taxes and he still calls it a VAT, which doesn’t make sense.)
“Why do they call a ‘value added tax’ ‘value added’? How does taxing something add ‘value’ to it?”
Because they supposedly only taxing the “value” added at that stage of the production process. The problem is in who get’s to determine what “value” is and how much of it is added.
“Why don’t they call it a ‘tax accumulated tax’? (Although in this article Morici says that businesses get to deduct their own sales taxes and he still calls it a VAT, which doesn’t make sense.)”
Morici is peaking about a specific kind of VAT. A subtraction method VAT where all of the taxes added to the products “value” are subtracted from it’s price to the current adders of “value”. In practice there is a great deal of cascading that occurs.
Our current corporate income tax is, in reality, nothing more than a subtraction method VAT.
Bottom line is that VAT’s are simply a method to hide taxes and ALL of the costs of complying with them from consumers.
Taxes on a business as well of all the costs of complying with the tax (the latter is many times much greater than the tax itself) can accrue to any one or any combination of only three places.
1. They can be included in the price of the good or service produced.
2. They can come out of the wages and benefits of the workers engaged in producing the good or service. or
3. They can come out of the return on investment of the stakeholders in the business.
In all cases the tax and compliance costs accrue to individuals and NOT the business itself!
It’s a tax on the added value, not a tax that adds value.