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.
And here I thought rats were good for ammo sales.
That bloated Communist Pig of a Government needs to tax less.
marking for later
It needs to govern less. It costs a lot of money to micromanage the things it shouldn't, and at the same time it shirks its Constitutional duties.
It could also be called the "Added To The Price You Have To Pay Tax", but that's a lot longer and harder to remember. "Son of NAFTA" would be another good name for it.
The tax revenues are lower and the dems think that raising the rates will produce more revenue. That’s how nuts they are. Raising taxes will cause flight/strikes in these conditions because the productive are seeing the scales tipping to reward the looters and moochers. “Wealth” has to be produced before you ‘redistibute’ it.
Might as well send each person a bill for their tax burden rather than the voluntary system we have now.
I chose not to pay the 12% F.E.T. on the trailers we built by simply not building the trailers anymore.
Easy squeezy, Lemon peasey!
The biggest problem with a VAT is it’s hidden. Better to have a visible national sales tax so we know what we are paying, and forget that too unless the constitution is modified regarding the income tax.
As a simple example, consider a corporation that has $10 billion in revenue, but net income of zero and taxable income of zero. Corporate tax revenue under the existing system would be zero, but the VAT at a 20% rate would produce tax revenue of $2 billion, regardless of whether the corporation made or lost money.
VAT is a convenient way for politicians to suck ever-increasing amounts out of the economy into their coffers, without having to be concerned about corporate profits at all. At present, in times of corporate losses, politicians suffer along with the rest of us. With a true VAT, they get theirs, regardless of how much everyone else struggles.
I agree with your statement about corp income tax. It drives me crazy that they call it a Value Added Tax, where is this VALUE you claim to add to it. I wish they would just call it a National Sales Tax. They won’t because people are too stupid to realize that they are being taxed to death.
Unless of course, companies stop producing and selling product, as griswold suggests in #7.
And here is what your price tag will likely look like..
You select a shirt and the price is 50.00 USD. You go to the counter and the sales person says that will be 50.00 USD. You ask what is the tax? “ Oh it is already in the price”. What you may not know is that tax is 25.5%. That is the sales tax in Iceland. Last year it was 24.5%.
In Iceland, when you go to reclaim your VAT tax at the airport ( and you must have a special form filled out by the shop where the item was purchased and not all shops do this) you only get 15% back.
Oh and did I mention that there are annual income taxes in Iceland? Not sure what that amount is on your income but you can bet it is high.
Now, what kind of homes do they have? Some are quite nice, some quite small. What kind of appliances do they have? Not the same sizes we have oh and costs? Let’s say many don’t have tumble dryers...can we say skinny fridges or what we would consider a bar fridge?
Be careful what you wish for you just might get it.
Yup, yup, yup. 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.
If the American people can put the right people in office that actually care about this country of ours, the people can turn this thing around. The government will do nothing as long as they have access to our money. We need to cut the money from their hands.
We don’t need additional taxes. We need Congress to cut spending.
I forgot one thing...for foreigners in Iceland, when you are going to get a refund for a purchase on one sales ticket, and if it is 5000ISK or more you must go to their customs to show the items first or the VAT window will not honor your claim...5000ISK is about 38.80 on today’s exchange rates.
I dont know how they got the label in the first place...they have always been big tax and spend government
AARP os already singing the virtues of a VAT tax because Europe is doing it, why not the US!
Europe is jumping off a cliff. Why not the US!
The Left does not recognize that, as the article says, corp taxes are a VAT, paid ultimately by consumers paying higher prices and workers losing jobs ad multi nationals flee America. Of course they hope for the worldwide socialist revival, and they see their salvation not in red shirted mobs, but in the finely tailored Davos Men who see a marriage of Govt, Corp, and Labor erasing boundaries and creating a vast nanny state where decisions are made for our good by bureaucrats and managers in the comfort of their well appointed offices in Brussels, Dvos, London and NYC.(and maybe Shanghai)
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