Posted on 04/04/2016 6:38:51 AM PDT by Arthur Wildfire! March
Cruz addresses a major reason for our trade deficit.
However ...
If something confuses people? It invites corruption. A handy rule of thumb in government.
Are VATs confusing?
Very.
~~~
Even explaining a VAT* is tough because there are many different kinds. Some alleged VATs aren't even VATs according to many.
But I'll break it down into two categories:
1. A good VAT.
2. A bad VAT.
~~~
A Good VAT
Senator Cruz proposes 'turning the tables' on Europe and other nations which are sneaking money back to corporations which give them jobs.
In the nutshell, a good 'VAT' is a response to 'stealth tariff' VATs in other countries.
For exmple:
US screws' prices are inflated by the same V.alue A.dded T.ax that every other screw has.
But Company X says, "We didn't make the screws there in the US. We made them here." Company X gets a VAT credit [same as a tax return]. US screw makers don't.
What do we get?
Our screw factories get screwed until they abandon the US and move to a nation which has a VAT.
Our trade agreements often limit foreign tariffs, but VATs aren't mentioned. A loophole in our treaties.
Are you still confused?
No worries -- just remember that a 'good' VAT counters 'stealth tariff' VATs.
Senator Cruz is most certainly addressing a serious problem that should be a major campaign issue.
~~~
A Bad VAT
To put it simply, a bad VAT is corrupt. Sooner or later, that is what all VATs become.
Being the aggressor by making the first VAT is corrupt in itself. It's a trade 'shell game'. Then it only gets worse.
Fees get bloated. Bureaucrats get overpaid with too many perks. Worst of all: political networkers offer big favors [aka 'bribes'] to key people so that 'values' get as distorted as the Virginia Property Tax on used cars.
~~~
Better Solution
A better solution is to threaten standard tariffs and other above-board measures if foreign VATs aren't made more fair.
Why should we make government more corrupt than it already is? Let them keep their VATs, but US manufacturers should be allowed to be competitive if our trade partners want zero tariffs.
Then their corruption slowly weakens them while we seek to reduce corruption through streamlining our tax system.
[I will quote others in followup posts.]
* ['VAT' stands for 'Value Added Tax'.]
Thank you for correcting me on another thread when you posted:
‘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.’ — Wolfie
Very clear. Thank you again.
You also posted ...
[quote]
... 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.
— Wolfie
I agree in the short run.
The Cruz plan offers a silver bullet, but it would be dangerous to stick with VATs. We would need an exit strategy that can’t easily be overturned by future legislation. And it would have to include pressure on other nations to do quit with this trickery.
How to put this plan into a political campaign would require a well-known book with a handy glossary, graphs, question-answer section, etc.
[Too late during this primary.]
VATs are taxes. Tariffs are taxes. All taxes become corrupt because the lawmakers who write the tax code are corrupt.
[Thank you for your detailed input which I managed to understand. Well done! I think you cleared up some things.]
[quote]
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.)
[Cruz avoids ‘double counting’ — very clear description here.]
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
— Babwa
[But regarding counter-VATS, wouldn’t it be better in the long run to pressure other nations into simplifying their own systems while we rebuild industrial independence?]
[Thank you for post in related thread. Reposting it here.]
Quote:
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.
— patlin
I’m beginning to understand the Cruz plan better.
Tricky.
In followup posts there is more detail.
Other nations get around free trade agreements with their shell-game VATs.
That’s one of the dirty little secrets killing trade.
When has Cruz EVER mentioned a VAT??
This is an imposed interpretation by Cruz detractors.
Romney will won more States than Cruz will this November
The Nixon South
Virginia , Cruz came in third, less than 20% of the vote Won no 1 County
Florida and Ohio same numbers.
Cruz this is time to put the country above the party
I was hoping he had a solution to foreign trade. So his tax policy does nothing to counter their VATs?
Cruz has a well established plan to address foreign trade.
Get rid of burdensome U.S. Regulation and Taxation!!!
THAT is how you do it without ridiculous tariffs.
Yes you are right. Fortunately Cruz will never be President. Trump has a good solid business friendly tax plan that he can actually likely get Congress to pass. It will help bring back jobs from overseas and roll back regulations to help make it easier to start a new business.
Replacing the Payroll tax and corporate income tax with this 16% tax or vat will bring a lot of jobs back to America, including foreign companies who will do business here. That is the bottom line.
Well as I said, I don’t agree with VATs, just pointing out that our economic competitors use them against us and skirt “free trade” agreements in the process, and we would be wise to protect ourselves in a similar manner with tariffs.
OTH the income tax is so well run and not corrupt in anyway. /sarc
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