[ancient_geezer]

gives a clear explanation of the difference between a Flat Tax and a VAT, So I must disagree about a Flat Tax being a VAT.

 

Perhaps you will explain the difference to us?

The Flat Tax is a VAT implemented with an individual Wage Tax.

The computation of a VAT is :

Taxrate*(Sales less purchases) = Taxrate*(GrossIncome - investment)

You must apparently disagree with Hall & Rabushka, the architechs of the Armey Flat Tax.

The Flat Tax; Chapter 3, by Robert Hall and Alvin Rabushka

In our system, all income is classified as either business income or wages (including salaries and retirement benefits). The system is airtight. Taxes on both types of income are equal. The wage tax has features to make the overall system progressive. Both taxes have postcard forms. The low tax rate of 19 percent is enough to match the revenue of the federal tax system as it existed in 1993, the last full year of data available as we write.

Here is the logic of our system, stripped to basics: We want to tax consumption. The public does one of two things with its income—spends it or invests it. We can measure consumption as income minus investment. A really simple tax would just have each firm pay tax on the total amount of income generated by the firm less that firm’s investment in plant and equipment. The value-added tax works just that way. But a value-added tax is unfair because it is not progressive. That’s why we break the tax in two. The firm pays tax on all the income generated at the firm except the income paid to its workers. The workers pay tax on what they earn, and the tax they pay is progressive.

To measure the total amount of income generated at a business, the best approach is to take the total receipts of the firm over the year and subtract the payments the firm has made to its workers and suppliers. This approach guarantees a comprehensive tax base. The successful value-added taxes in Europe work this way.

***

The other piece is the wage tax. Each family pays 19 percent of its wage, salary, and pension income over a family allowance (the allowance makes the system progressive). The base for the compensation tax is total wages, salaries, and retirement benefits less the total amount of family allowances.

 

Concerning Proposals for a Flat-Rate Consumption Tax
Before the Joint Economic Committee, Statement of Robert S. McIntyre
Director, Citizens for Tax Justice May 17, 1995

• The Hall-Rabushka flat tax, and its Armey and Specter variants, would replace the current personal and corporate income taxes with a new tax that is conceptually identical to a "subtraction-method" value-added tax, a version of a national sales tax, with two major modifications: First, imports would be exempt from the flat tax, while exports would be subject to tax. Second, to mitigate the regressivity of the VAT, cash wages, pensions received and other cash earned income would be taken out of the VAT base (i.e., deducted by businesses) and taxed directly to individuals, with exemptions. Thus, structurally, the flat tax is exactly equal to a value-added tax with an import incentive, an export disincentive and a personal rebate based on a percentage of a capped amount of cash wages, pensions and other earned income.Businesses compute a typical "subtraction-method" value-added tax by adding up their taxable gross receipts and subtracting the cost of previously taxed items. Thus, in computing the VAT, businesses deduct their purchases from other businesses, whether for supplies, services, machines, land or whatever.

[Leto]

When I refered to the VAT (and I believe when Lindsey refers to a VAT) I am refering to a Eurpoean style VAT where products have a tax added at each stage of the production process. THe tax is at a lower rate and is "hidden" from the consumer. A single item is taxed at multiple points. A NRST like 2525 avoids this problem by taxing the item only at the point of sale.

In the Case of the Flat Tax it depends on How the tax is implemented (and in any tax reform proposal the devil is in the details!) Some proposals, tax Corporate profits (gross revenue minus plant, equipment and wages) then taxes the employee wages, In this case the revenue is taxed only once at it's point of origin. Ohter variations remove all business taxes, and tax the vusiness owner (shareholder) dividends (or in the case of stock sales capital gains) at the same rate as any other income. This is to avoid the political canard of the 'rich' not paying taxes on their interest income.

The current system is a real VAT also in the case of business income and captal where revenue is taxed 2-3 times and rates going well over 50%.

It is interesting that Hall Rabushka and Mitchell describe the Flat Tax as a Consumption tax the same as an NRST such as HR2525 or the Tauzen NRST.


Thanks for the link!