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 incomespends 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 firms 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. Thats 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. |