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The absolute percentage isn’t important. The problem is that when sales tax fails to work as a consumption tax, it gives a tax incentive to be vertically integr

The absolute percentage isn’t important. The problem is that when sales tax fails to work as a consumption tax, it gives a tax incentive to be vertically integrated. And there is implicitly a suggestion that encouraging companies to become more vertically integrated is not a desirable property of the tax system.

giantg2 6y ago
The percentage doesn't matter, but the example is clearly misleading on the relative tax revenue collected under the example. How does it provide a vertical integration incentive? Sales tax is only applied at the final step (or rebates if applied before that). The main integration incentive is the ability to reduce margin at each step (if needed) and have tighter supply chain control.
- dan-robertson 6y ago
  Did we read the same article? Let’s be explicit and instead of talking about sales tax which the article claims sometimes acts like VAT and sometimes like a gross receipts tax and instead use those terms explicitly. In the gross receipts tax regime, tax is applied at every boundary between businesses and so having fewer of these boundaries (ie being vertically integrated) gives a lower final price with workers receiving equal pay. In this way, the tax system incentives vertical integration. In the VAT regime, the final price and total tax paid is the same whether or not the business is vertically integrated, and so the tax system doesn’t incentivise one option over the other. The key point is that we first compare two competing business structures under the same tax system, and it turns out the tax rate doesn’t affect the argument so long as it’s positive, and then we compare how those structures relate to each other in different tax systems (where the rates don’t matter because they don’t change the relationship between the structures that both live under the same rate)
  - giantg2 6y ago
    If you mean the poorly presented one, then yes. The gross receipts structure is used instead of business income tax in some areas and is a separate thing from sales tax. Conflating the two doesn't help anything. The author's link to support the structure that collects sales tax at every step is really gross receipts. Perhaps there's a better site with a good example and a link to a sales tax structure that exists as they depict it in this article. Even if it did work that way, the primary drivers for vertical integration would be the option to shrink the margins at each step and supply chain control (quality, moating, etc). Is there an article discussing the differences in policies and rates of vertical integration between counties and the effects of it? It might be better to show that, rather than this article.

giantg2 6y ago

The percentage doesn't matter, but the example is clearly misleading on the relative tax revenue collected under the example. How does it provide a vertical integration incentive? Sales tax is only applied at the final step (or rebates if applied before that). The main integration incentive is the ability to reduce margin at each step (if needed) and have tighter supply chain control.

dan-robertson 6y ago
Did we read the same article? Let’s be explicit and instead of talking about sales tax which the article claims sometimes acts like VAT and sometimes like a gross receipts tax and instead use those terms explicitly. In the gross receipts tax regime, tax is applied at every boundary between businesses and so having fewer of these boundaries (ie being vertically integrated) gives a lower final price with workers receiving equal pay. In this way, the tax system incentives vertical integration. In the VAT regime, the final price and total tax paid is the same whether or not the business is vertically integrated, and so the tax system doesn’t incentivise one option over the other. The key point is that we first compare two competing business structures under the same tax system, and it turns out the tax rate doesn’t affect the argument so long as it’s positive, and then we compare how those structures relate to each other in different tax systems (where the rates don’t matter because they don’t change the relationship between the structures that both live under the same rate)
- giantg2 6y ago
  If you mean the poorly presented one, then yes. The gross receipts structure is used instead of business income tax in some areas and is a separate thing from sales tax. Conflating the two doesn't help anything. The author's link to support the structure that collects sales tax at every step is really gross receipts. Perhaps there's a better site with a good example and a link to a sales tax structure that exists as they depict it in this article. Even if it did work that way, the primary drivers for vertical integration would be the option to shrink the margins at each step and supply chain control (quality, moating, etc). Is there an article discussing the differences in policies and rates of vertical integration between counties and the effects of it? It might be better to show that, rather than this article.