Posted on 04/03/2016 7:38:50 AM PDT by Arthur Wildfire! March
As I understand it, a VAT tax is very different than a national sales tax because it taxes every level of production and distribution.
That gives imported products a grossly unfair advantage.
~~~
For example -- the price of a screw.
First the ore value is taxed.
Then the smelted steel value is taxed.
Then the steel distributer is taxed.
Then after the screw is made, the value of the screw is screwed again.
Then the screw wholesale value is screwed.
Then the retail value is screwed again -- the only visible aspect of the tax. The rest of the screwing is hidden in the price.
~~~
But if you simply import foreign made screws, then you bypass almost all of the layers of 'value added' taxing.
It would make manufacturing at home harder than ever. The only screws being made here would be corporate welfare.
Not sure if this is correct. If I'm mistaken, I hope someone corrects me.
If my vague understanding is correct, then this would be free trade on steroids.
~~~
This plan was criticized in February. Did 'anti-establishment' Senator Ted Cruz change his tax plan recently?
Key word — vat tax.
http://www.freerepublic.com/tag/vattax/index?tab=articles
Ted Cruz’s and Rand Paul’s Strange Embrace of the VAT
Law of Unintended Consequences: New EU Tax Laws Force Thousands of Businesses to Close
Bill Clinton: More immigrants and value-added tax will reduce deficit
Investor’s Business Daily : About the VAT Tax, Robert Reich Is Right
~~~
Adding to the key word:
The VAT in Ted Cruz’s Tax Plan is a Threat to Limited Government and the Economy [January]
http://www.freerepublic.com/focus/news/3384004/posts
‘Cruz’s VAT and European VATs are economically identical, and his entails the same substantial threat of growing government.’
The VAT: Coming Soon To A Campaign Stop Near You (Cruz Tax Plan)
http://www.freerepublic.com/focus/f-news/3394643/posts
American Enterprise Institute | February 8 | Alan D. Viard
‘Moreover, their proposed VATs would be largely invisible to the public because they would not be listed on customer receipts or pay stubs ...’
Hidden taxes are the worst.
Sorry - lovely thesis but utterly wrong. Each layer of VAT is offset by the all previous layers.
How does a 16% business tax that eliminates corporate and payroll taxes raise the price of products? It should actually lower them.
In addition to the low 16% flat tax on business, the business can also deduct 100% of their costs for improving their business in one year.
Offset? As in ‘enough revenue already’ so the hidden layers of the vat tax can be cut?
Bill Clinton wanted a value added tax too. And so did members of Obama’s think tank.
For some reason we all opposed it when they suggested it.
VATs act as an ersatz tariff on imports. Germany, for example, has a VAT that tacks on 19% to the cost of all imports. This raises the price on all imports and favors the purchase of domestic goods.
We have ‘vat’ style taxes in gasoline, right? Hidden taxes that simply make the cost look higher.
So the oil that’s imported, under free trade, would be tax free compared to oil drilled here in the US.
‘Germany, for example, has a VAT that tacks on 19% to the cost of all imports.’
Interesting. So the VAT tax includes trade protectionism?
Cruz plan for corporate tax is a form of VAT, but there is no collection at each step. From Tax Foundation:
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.
http://taxfoundation.org/article/details-and-analysis-senator-ted-cruz-s-tax-plan
A VAT usually taxes imports and usually subtracts the tax on exported goods.
In Europe, their residents/consumers pay VAT on top of the retail price.
Cruz’s plan is not a VAT tax, however, it is an unconstitutional tax as it would continue to misapply the law just as the current income “excise” tax is misapplied. Also, $36,000 for a family of four is NOT middle class in today’s economy.
The fact is, the numbers in Ted’s tax plan do not add up, and not to be biased about the subject, as a Trump supporter, I can honestly tell you that Trump’s flat tax plan is not any better. The problem is downsizing government, educating the public as to the true nature of what and “excise” tax is and does that “excise” refer to “all that one deposits in their bank account”. Therein lay the problem of the bloated government beast, the misapplication of a 100% constitutional Article 1 “excise” tax.
Look at Great Britain if you want to see how pernicious a VAT is
Teddy’s tax plan is not good for small business.
Here is a better explanation of Cruz’s business tax. It replaces current 35% Corporate tax And all payroll taxes - approx. 15:
What Is Ted Cruz’s Business Flat Tax?
Ted Cruz’s “Business Flat Tax” is what most tax policy experts would call a “tax-inclusive subtraction-method value-added tax” (VAT) or a “business transfer tax” (BTT). These terms are pretty technical, so I’ll try to distill them down into something a little bit easier.
What this means, in plainer terms, is that it’s a broad tax on all kinds of income, levied on businesses and organizations. You, personally, wouldn’t have to file it for yourself. Instead, it would be taken care of at the organizational level.
That does not, of course, mean it’s free. When businesses pay taxes on people’s behalf, it still ultimately means that the government gets some money that otherwise would have gone to people. Further on, we’ll talk about who would end up losing money from the existence of this tax.
How Would It Apply To an Ordinary Business’s Income?
The starting point for a subtraction-method value-added tax is pretty simple, especially when it comes to everyday private businesses. You start with all of a business’s revenues. (Most likely, this tax would be filed on a quarterly basis.)
However, you don’t stop there: a problem with counting all business revenues is that it ends up being a double-counting. For example, suppose you love watching Disney movies on Netflix. Netflix gets revenues from your subscription, and then it uses some of that money to pay Disney for the rights to Disney content. If we counted that money both at the Disney level and the Netflix level, we’d end up taxing the same basic product twice, merely because it involves two different companies. This is not good tax policy; that’s why modern tax systems try to avoid this.
The way the subtraction-method VAT fixes this is by, well, subtraction. Under this kind of tax system, Netflix would count all of its revenue, but then subtract the amount that it pays to other businesses, like Disney. Disney would then have to account for its own revenue and also file taxes. The result is that everything gets neatly single-counted, and nothing gets double-counted.
There’s also one other thing the tax subtracts: capital costs. That is, when Ford builds a new auto plant, it can deduct those business costs as well. This is an important aspect of the tax, and it marks a slight difference with corporate income taxes today (which also allow these costs to be deducted, but over a much more complicated schedule.)
http://taxfoundation.org/blog/ted-cruz-s-business-flat-tax-primer
Here’s some info I found on it. But please note, I don’t necessarily support a VAT, just a tariff that would have the same effect. The beauty of the VAT is that is bypasses trade agreements that forbid tariffs:
Approximately 160 other countries are successfully using a VAT, and the playing field will never be level until we have one, too. Because these countries use a VAT and we don’t, our exports are more expensive for them and their imports are cheaper than our domestically produced goods. This puts our factories out of business.
Germany, for example, uses a 19% VAT as a protective tariff against foreign manufacturers trying to sell to the German market. When American cars are exported from the U.S. to Germany, that 19% VAT is added to the price of the vehicle. Additionally, American companies pay an extra 19% in taxes in transportation costs, including docking, duties and insurance.
German products get rebated as they leave their home country and are not taxed upon entering the United States. This means the price of German-made products is lower, both in their home nation and here in America, than American-made goods. We must level the playing field if we want to be competitive.
bfl
You pay the VAT when you buy something, but when you sell it either domestically or export it, the VAT is refunded.
Sometimes in VAT countries, there is a small amount of the tax not refunded for administration.
The problem with VAT is the huge expense of administering the system that weights on businesses.
Remember, it is a refund, so you can’t get more than you paid.
VAT = Value Added Tax but I call it productivity tax - Businesses that create the most value as compared to their expenses that were subjected to the VAT will pay the highest share of all taxes. VAT is truly is an innovation tax.
Just think what this tax would do to a Software Company, nearly all their expenses will no longer be tax deductible and everything they sold would qualify for almost no refund because they make software.
This explains why the United States has such an advantage in these soft information industries, VAT kills these types of businesses.
How can you say Cruz plan is not good for small business? Maximum individual rate of 10‰ and 16% for business with no payroll taxes has to be better.
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.