The VAT angle comes up not because of Cain’s sales tax, but because his corporate tax is based on
“Gross income less all purchases from other U.S. located businesses, all capital investment, and net exports.”
That is, corporations cannot deduct the cost of labor when figuring their taxable income. It’s that aspect that makes Cain’s corporate tax like a VAT.
However, the analyses I’ve seen (including Bachmann’s disengenuous remarks last night), neglect to mention that the ~8% that corporations currently pay on labor through payroll taxes are eliminated in Cain’s proposal.
Yep it was a very dishonest comment from a Tax Lawyer like Bachmann. She knows full well her statements were not accurate.
I disagree that whether or not the cost of labor is deducted has anything to do with whether a tax is a VAT.
A VAT is literally a “value-added tax.” What it seeks to tax is the “value added” at each step of the process of bringing an item to market.
This, of course, not only adds a tax at every step of the way, it opens the process to political corruption because someone, out-of-sight, of course, gets to define what is “value” at every step of the process and then define when “value” is “added” and then define how to measure how much “value” was “added.”
It really doesn’t have anything to do with the cost of labor.
Further, I think those who claim the NRST is a VAT are not thinking at the level of sophistication you are anyway. They just see a tax on consumer goods and think “VAT.”