7 ms·

No, a gross receipts tax is on sales and not profits. If I understand it correctly (I don't know the details for every state), a gross receipts tax doesn't eve

No, a gross receipts tax is on sales and not profits. If I understand it correctly (I don't know the details for every state), a gross receipts tax doesn't even adjust for value added (the VA in VAT). For example say a few companies are involved in producing a good (starting from raw materials) so the supply chain looks like this: $7 (raw materials) -> $8 (components) - > $9 (finished good wholesale) -> $10 (store price) With a VAT, the total taxed amount is $10, which is divided up among the companies based on how much value they added (so if they move from $8->$9, they pay tax on $1). With a gross receipts tax, the total taxed amount is $7+$8+$9+$10=$34. Goods that are produced by many small companies working together will pay a lot more taxes than those produced by huge vertically-integrated ones. There's some good reasons to use a VAT if you want to tax revenue, and one of them is to avoid problems like this.

jfengel 5y ago
With a VAT each layer deducts the tax they pay. The net tax is only on the the value added. The company in the middle pays tax on $7 and collects tax on $8, and forwards the difference. It's very elegant and fair, but imposes a lot of accounting. Sales tax is easier in that it only collects at the end, but it's actually hard to define "end". (Buy a screw and you pay tax, buy a manufacturer buying the same screw usually does not.) There are still problems about regressive taxation (are stock profits value add? Services? Plain old labor? What's the difference? Usually poor people end up paying the taxes on everything while rich people buy things that aren't subject to the system). Still, if you want to tax profits on consumables, it's remarkably straightforward.
- throwaway34241 5y ago
  It does add more accounting, but one advantage of involving the companies in the middle is it makes cheating harder and less lucrative, since a bunch of companies have to coordinate to avoid paying the VAT instead of just one company at the end. Agree that VAT/sales taxes are regressive and shift more of the tax burden to lower-income people. Although the only US political candidate I can remember recently proposing a VAT was Yang in which case his UBI proposal would probably more than balance out the effects on after-tax income.
  - jfengel 5y ago
    VAT plus UBI does save problems for the poor, but it's still regressive. The net effect is to put the main burden on the middle class.
    - throwaway34241 5y ago
      I don't know if Yang's math checks out, but I think his proposal was $1000/mo and a 10% VAT. So the breakeven point would be $120k spending on taxable items/yr for an individual, or $240k spending/yr for a couple, with people below that coming out ahead and above coming out behind. Where you draw the line for "middle class" is somewhat arbitrary - I think you could be middle class and still earn over $120k, especially in a high cost of living area - but probably most people who consider themselves middle class would fall under that. Especially because people who earn $120k are probably not spending $120k/yr once you factor in retirement contributions, income taxes, etc. A relatively high-profile economist wrote positively about the UBI idea last year. [1] Not that you couldn't make it more progressive. I think I've seen proposals for a progressive individual consumption tax, which would look something like a progressive income tax but then removing the limits for IRA contributions. The theory being you would put money you want to save in the non-taxable account, then you would only withdraw what you want to spend in a given year, which could be taxed at a progressive rate. [1] https://scholar.harvard.edu/files/mankiw/files/how_to_increase_taxes_on_the_rich_amended_feb2020.pdf https://scholar.harvard.edu/files/mankiw/files/how_to_increa...
      - bumby 5y ago
        >Where you draw the line for "middle class" is somewhat arbitrary It’s a convention so, yes, it’s arbitrary (and people tend to change that definition to fit their points, and of course it’s relative to COL) but the most widely used definition is the middle quintiles. I believe this puts the upper bound around $120k for a household (not individual) in the US. And you’re right, most people do consider themselves middle class. Some studies show as much as 90% of people think they are middle class which, unless we use a very loose statistical definition, is obviously false. The problem is people subjectively compare their life to their own peer group rather than society as a whole, so they are misled about defining the societal norm.

jfengel 5y ago

With a VAT each layer deducts the tax they pay. The net tax is only on the the value added. The company in the middle pays tax on $7 and collects tax on $8, and forwards the difference. It's very elegant and fair, but imposes a lot of accounting. Sales tax is easier in that it only collects at the end, but it's actually hard to define "end". (Buy a screw and you pay tax, buy a manufacturer buying the same screw usually does not.) There are still problems about regressive taxation (are stock profits value add? Services? Plain old labor? What's the difference? Usually poor people end up paying the taxes on everything while rich people buy things that aren't subject to the system). Still, if you want to tax profits on consumables, it's remarkably straightforward.

throwaway34241 5y ago
It does add more accounting, but one advantage of involving the companies in the middle is it makes cheating harder and less lucrative, since a bunch of companies have to coordinate to avoid paying the VAT instead of just one company at the end. Agree that VAT/sales taxes are regressive and shift more of the tax burden to lower-income people. Although the only US political candidate I can remember recently proposing a VAT was Yang in which case his UBI proposal would probably more than balance out the effects on after-tax income.
- jfengel 5y ago
  VAT plus UBI does save problems for the poor, but it's still regressive. The net effect is to put the main burden on the middle class.
  - throwaway34241 5y ago
    I don't know if Yang's math checks out, but I think his proposal was $1000/mo and a 10% VAT. So the breakeven point would be $120k spending on taxable items/yr for an individual, or $240k spending/yr for a couple, with people below that coming out ahead and above coming out behind. Where you draw the line for "middle class" is somewhat arbitrary - I think you could be middle class and still earn over $120k, especially in a high cost of living area - but probably most people who consider themselves middle class would fall under that. Especially because people who earn $120k are probably not spending $120k/yr once you factor in retirement contributions, income taxes, etc. A relatively high-profile economist wrote positively about the UBI idea last year. [1] Not that you couldn't make it more progressive. I think I've seen proposals for a progressive individual consumption tax, which would look something like a progressive income tax but then removing the limits for IRA contributions. The theory being you would put money you want to save in the non-taxable account, then you would only withdraw what you want to spend in a given year, which could be taxed at a progressive rate. [1] https://scholar.harvard.edu/files/mankiw/files/how_to_increase_taxes_on_the_rich_amended_feb2020.pdf https://scholar.harvard.edu/files/mankiw/files/how_to_increa...
    - bumby 5y ago
      >Where you draw the line for "middle class" is somewhat arbitrary It’s a convention so, yes, it’s arbitrary (and people tend to change that definition to fit their points, and of course it’s relative to COL) but the most widely used definition is the middle quintiles. I believe this puts the upper bound around $120k for a household (not individual) in the US. And you’re right, most people do consider themselves middle class. Some studies show as much as 90% of people think they are middle class which, unless we use a very loose statistical definition, is obviously false. The problem is people subjectively compare their life to their own peer group rather than society as a whole, so they are misled about defining the societal norm.