The 16% VAT seems unnecessarily complicated and gives a lot of incentive for businesses to evade it. It also leaves in place room for a lot of hanky panky with regards to deductions and exemptions for R&D, investments, health care, and pension contributions. It also pushes the entire burden of 16% on the wages for employees of non-profits and charities and churches where they now pay just the payroll tax of 7.65% and no income tax.
It’s good points are that it can be refunded simply at the same 16% rate for exports, and that businesses will pay taxes even if they make it look like they made no profit — which is not the case with the current Corporate Income Tax.
Likewise, the 10% single rate (not flat tax) on individuals is hampered by retaining deductions both standardized and itemized. This makes the rate higher than it would need to be without any deductions and continues the use of the tax code for social engineering purposes.
I would rather a GRT for all businesses and individuals with no deductions or exemptions or expensing for anything. Just 5% of your Gross Revenue, period. The revenue from a 5% GRT would be more than current total Federal revenues with much less incentive to evade because the rate is so low. This “Nickle Plan” would eliminate all the rigamarole from taxing.
Then do reciprocal VATs on imports — match whatever that country charges us plus any tariffs or duties it puts on American goods sold there. Credit our exports to offset the VAT charged by the country it is exported to. These two steps will encourage those countries to remove their tariffs and duties on our goods.
Finally, an informed critic of the Cruz tax plan.
Now for other informed opinions ....
[quoting wolfie]
‘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.’ ...
... 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
Kellis, you being an informed critic might find this post interesting as well:
[quoting Babwa]
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
[My own opinion ...]
While I’m a Trump supporter, we should go back to only taxing consumption:
1. We get rid of IRS tyranny on individuals.
2. Taxing businesses is also more efficient than trying to snoop into the income of every US resident.
3. LESS CORRUPTION.
Lobbying has a lot more trouble hiding in the woodwork because purchase prices are much simpler than calculating net profits.
4. We encourage savings rather than penalize income and profits.
~~~
The transition into this tax plan is what scares people. ‘Better the devil you know’, they think. If you go piecemeal, then you still have the income tax. If you go whole hog and leap from the plane, they wonder if the parachute was packed properly.
And unfortunately for Cruz, if FReepers are baffled by his plan, then he’s had a tough row to hoe on this issue.
That’s why Rubio went at him the way he did. Cruz failed to clarify his message.
Taxing gross profits is the opposite of a VAT. It encourages imports since foreign companies pay no tax to us on their gross profits.
Five percent is nice and low. And very simple. I’ll give you that. But when a company is just breaking even or in the red, you kill it off.
I’m also curious about banks — they have a huge money flow but a low net profit margin. Money entrusted to them should not count as a gross profit.
But now for counter-VATs. Those are tax deductions/credits as I understand it, the very thing you seek to avoid. But if we have an income tax that is necessary to counter VATs.