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Relying solely on VAT has big issues too - it is a regressive tax (VAT paid as a percentage of net household income tends to be higher for poorer households), B

by Closi 3y ago

Relying solely on VAT has big issues too - it is a regressive tax (VAT paid as a percentage of net household income tends to be higher for poorer households), B2B businesses would be fully untaxed, and it doesn't really tax the businesses (the tax is on the consumer price rather than the business profit). > You have to tax the income at the source, at the point of sale. It’s why most of the EU shifted to VAT’s decades ago. This is misleading - the EU put in place VAT as well as a minimum 15% corporation tax.

onlyrealcuzzo 3y ago
> it is a regressive tax We already have a "progressive" tax system in which ~70% of Federal revenue (not including SS & Medicare which are separate line items funded separately) comes from individual income tax. Why can't we have a corporate tax that actually works and is evenly distributed instead of "progressive"?
- hellojesus 3y ago
  The entire point of the US system at birth was for excise taxes to exist. You can make them astronomical on luxury items and keep them minimal or nonexistent on food, etc. to achieve a progressive outcome. I spit on 16A. The US was designed not to have any direct tax, including federal income tax, unless it passed the apportionment test.
  - dsq 3y ago
    > The entire point of the US system at birth was for excise taxes to exist Could you please elaborate?
    - hellojesus 3y ago
      Direct taxes paid to the federal government are subject to apportionment in the US constitution. Therefore, for an income tax to be paid, it would have to be apportioned, meaning that states would have to pay a total amount equivalent to their proportion of the population. If NY has 10% of the total population, 10% of income taxes would need to be paid from NY. Similarly if TX only has 2% of the population, the tax would need 2% of its funding from TX. If everyone paid the same amount, this would be easy. But if you wanted to only tax millionaires, for example, that means that the millionaires in NY would be responsible for 10% of the total tax paid while those in TX would be responsible for 2%. Now consider that there are 1000 millionaires in NY but only 2 in TX. Each NY millionaire would be required to pay (.1)(1/1000)=.0001 of the total tax bill while each millionaire in TX would be required to pay (.02)(1/2)=.01. Obviously those in TX would never agree to such a tax. The goal with this is debated, but I believe it was done specifically to make passing direct taxes near impossible. Indirect taxes, such as excise taxes, are preferable since people only pay them if they want to. They can always elect to not purchase a good or service to avoid the tax. Additionally, it allows a much more progressive system than income taxes, since you can impose severe luxury taxes based on consumption only. The 16A came along and changed this by explicitly exempting income from the apportionment requirements. Likely this was one of the major catalysts in the destruction of the American experiment.
      - dsq 3y ago
        Being non USian, I wasn't aware of apportionment in the constitution. Thanks for the explanation.
- Closi 3y ago
  Well as per the other points, VAT isn't actually a corporate tax that actually works - Firstly because it is a tax on consumer prices rather than corporate profits or revenue. If you were a highly profitable oil drilling company, or were in the business of mineral extraction, or were an investment bank for instance, you would not be taxed at all under a 'VAT only' system. IMO we might as well just say 'don't tax companies' - VAT isn't a substitute for a corporation tax, because it's not a tax on corporations (it's a tax on consumer purchases').
  - codexb 3y ago
    All taxes are ultimately born by the consumer. All. Of. Them. It doesn't matter how much you try and obfuscate the tax by introducing it at different points in the supply chain. If you charge a tax anywhere in the supply chain, suppliers will just increase prices and pass that cost onto the consumer.
    - Closi 3y ago
      Not really true - a corporate capital gains tax for instance is generally born by a companies shareholders rather than the companies consumers, so it's clear that some taxes can be directed more towards company shareholders than consumers. Similarly dividend taxes don't really put much upwards pressure on consumer prices. So the idea of corporation tax is to try and structure a tax which puts pressure on corporate profits on very profitable businesses, rather than putting direct pressure on prices. I mean it depends who you call a 'consumer' as ultimately someone has to pay, but the idea is to direct that to the richer capital-owners rather than the poorer, and VAT generally hits the poorer.
    - onlyrealcuzzo 3y ago
      You can definitely distort behavior with taxes.
codexb 3y ago
> It's regressive Corporate tax is already flat in the US (21%). For the majority of corporations that pass-through their tax, I don't have data on it, but I'm willing to bet the individual marginal rate is higher than 21%, so as long as the VAT is lower than those rates, it's no worse than it is right now. > B2B businesses would be fully untaxed Depends on how you structure the VAT. I don't understand all the different possible implementations, but my understanding is that this is done by design so that value-added-production is what is actually being taxed, and not how many times a product changes hands (supplier -> manufacturer -> distributer-> wholesaler -> retailer). All taxes are born by the consumer anyway. > It doesn't really tax the businesses This is true for all taxes. The end consumer is always the one that ends up paying all of the tax, because any tax in the supply chain will always get passed along through higher prices.
- Closi 3y ago
  To clarify - I mean it can be considered regressive for consumers rather than businesses. A higher proportion of income of the poor gets spent on VAT than the rich. > Depends on how you structure the VAT. I don't understand all the different possible implementations, but my understanding is that this is done by design so that value-added-production is what is actually being taxed. Most businesses are VAT exempt (or can reclaim the VAT) to avoid multiple levels of VAT being charged (at least this is how it works in the UK/EU), so it often effectively is only really applied at the final sale. As an example, if I own a company that mines coal in the UK and then sells it to a steel smelting company, both the coal mining company and the steel smelting company would be VAT registered and not pay VAT for these transactions. > This is true for all taxes. The end consumer is always the one that ends up paying all of the tax, because any tax in the supply chain will always get passed along through higher prices. This is not true for all taxes - for instance a tax on corporate profit does not get passed along in the same way as a blanket X% on all sales.

by Closi 3y ago

onlyrealcuzzo 3y ago

> it is a regressive tax We already have a "progressive" tax system in which ~70% of Federal revenue (not including SS & Medicare which are separate line items funded separately) comes from individual income tax. Why can't we have a corporate tax that actually works and is evenly distributed instead of "progressive"?

hellojesus 3y ago
The entire point of the US system at birth was for excise taxes to exist. You can make them astronomical on luxury items and keep them minimal or nonexistent on food, etc. to achieve a progressive outcome. I spit on 16A. The US was designed not to have any direct tax, including federal income tax, unless it passed the apportionment test.
- dsq 3y ago
  > The entire point of the US system at birth was for excise taxes to exist Could you please elaborate?
  - hellojesus 3y ago
    Direct taxes paid to the federal government are subject to apportionment in the US constitution. Therefore, for an income tax to be paid, it would have to be apportioned, meaning that states would have to pay a total amount equivalent to their proportion of the population. If NY has 10% of the total population, 10% of income taxes would need to be paid from NY. Similarly if TX only has 2% of the population, the tax would need 2% of its funding from TX. If everyone paid the same amount, this would be easy. But if you wanted to only tax millionaires, for example, that means that the millionaires in NY would be responsible for 10% of the total tax paid while those in TX would be responsible for 2%. Now consider that there are 1000 millionaires in NY but only 2 in TX. Each NY millionaire would be required to pay (.1)(1/1000)=.0001 of the total tax bill while each millionaire in TX would be required to pay (.02)(1/2)=.01. Obviously those in TX would never agree to such a tax. The goal with this is debated, but I believe it was done specifically to make passing direct taxes near impossible. Indirect taxes, such as excise taxes, are preferable since people only pay them if they want to. They can always elect to not purchase a good or service to avoid the tax. Additionally, it allows a much more progressive system than income taxes, since you can impose severe luxury taxes based on consumption only. The 16A came along and changed this by explicitly exempting income from the apportionment requirements. Likely this was one of the major catalysts in the destruction of the American experiment.
    - dsq 3y ago
      Being non USian, I wasn't aware of apportionment in the constitution. Thanks for the explanation.
Closi 3y ago
Well as per the other points, VAT isn't actually a corporate tax that actually works - Firstly because it is a tax on consumer prices rather than corporate profits or revenue. If you were a highly profitable oil drilling company, or were in the business of mineral extraction, or were an investment bank for instance, you would not be taxed at all under a 'VAT only' system. IMO we might as well just say 'don't tax companies' - VAT isn't a substitute for a corporation tax, because it's not a tax on corporations (it's a tax on consumer purchases').
- codexb 3y ago
  All taxes are ultimately born by the consumer. All. Of. Them. It doesn't matter how much you try and obfuscate the tax by introducing it at different points in the supply chain. If you charge a tax anywhere in the supply chain, suppliers will just increase prices and pass that cost onto the consumer.
  - Closi 3y ago
    Not really true - a corporate capital gains tax for instance is generally born by a companies shareholders rather than the companies consumers, so it's clear that some taxes can be directed more towards company shareholders than consumers. Similarly dividend taxes don't really put much upwards pressure on consumer prices. So the idea of corporation tax is to try and structure a tax which puts pressure on corporate profits on very profitable businesses, rather than putting direct pressure on prices. I mean it depends who you call a 'consumer' as ultimately someone has to pay, but the idea is to direct that to the richer capital-owners rather than the poorer, and VAT generally hits the poorer.
  - onlyrealcuzzo 3y ago
    You can definitely distort behavior with taxes.

codexb 3y ago

> It's regressive Corporate tax is already flat in the US (21%). For the majority of corporations that pass-through their tax, I don't have data on it, but I'm willing to bet the individual marginal rate is higher than 21%, so as long as the VAT is lower than those rates, it's no worse than it is right now. > B2B businesses would be fully untaxed Depends on how you structure the VAT. I don't understand all the different possible implementations, but my understanding is that this is done by design so that value-added-production is what is actually being taxed, and not how many times a product changes hands (supplier -> manufacturer -> distributer-> wholesaler -> retailer). All taxes are born by the consumer anyway. > It doesn't really tax the businesses This is true for all taxes. The end consumer is always the one that ends up paying all of the tax, because any tax in the supply chain will always get passed along through higher prices.

Closi 3y ago
To clarify - I mean it can be considered regressive for consumers rather than businesses. A higher proportion of income of the poor gets spent on VAT than the rich. > Depends on how you structure the VAT. I don't understand all the different possible implementations, but my understanding is that this is done by design so that value-added-production is what is actually being taxed. Most businesses are VAT exempt (or can reclaim the VAT) to avoid multiple levels of VAT being charged (at least this is how it works in the UK/EU), so it often effectively is only really applied at the final sale. As an example, if I own a company that mines coal in the UK and then sells it to a steel smelting company, both the coal mining company and the steel smelting company would be VAT registered and not pay VAT for these transactions. > This is true for all taxes. The end consumer is always the one that ends up paying all of the tax, because any tax in the supply chain will always get passed along through higher prices. This is not true for all taxes - for instance a tax on corporate profit does not get passed along in the same way as a blanket X% on all sales.