Ted Cruz's Business Flat Tax is a VAT [2nd major problem with Cruz]

Forbes.com ^ | 1/15/16 | Len Burman

[Jim W N]

At [the Jan 14, 2016] GOP debate, Senator Marco Rubio accused Ted Cruz of sneaking a value-added tax (VAT) into his tax reform plan.

RUBIO: Here is the one thing I’m not going to do. I’m not going to have something that Ted described in his tax plan. It’s called the value-added tax. And it’s a tax you find in many [countries] in Europe.

…

CRUZ: Well, Marco has been floating this attack for a few weeks now, but the problem is, the business flat tax in my proposal is not a VAT. A VAT is imposed as a sales tax when you buy a good.

Rubio is right. Cruz’s business flat tax is a subtraction-method VAT. Businesses play a flat 16-percent tax rate on the difference between sales price and the cost of inputs purchased from other businesses—i.e., value-added.

How does it work? Consider a loaf of bread. Say the farmer sells the wheat to a miller for 25 cents. Assuming the farmer has no deductible expenses, the initial tax would be 4 cents (16 percent of her 25 cents of income). The miller grinds the wheat and sells flour to a baker for a dollar. His value added is 75 cents, which is subject to 12 cents of business flat tax. The baker sells the loaf of bread for $2 and remits another 16 cents of tax on her $1 of value-added. The total tax adds up to 32 cents, or 16 percent of the final sale price.

The VAT is different from state sales taxes because it is included in the [internal] price of the good rather than added at the cash register. That’s one reason why some conservatives object to it—Rubio cited Ronald Reagan. And why Cruz may be so defensive.

[oldtech]

How about this approach. Have only one tax that is initiated at the local level. What is left after local use goes to the state & federal. That’s it. Why send money to the feds to filter back down to the states & finally the local level where it actually accomplishes something? The total funds would only need to change hands once at each level. So,maybe there isn’t much left for the feds....would this be a bad thing?

[Jim W N]

Well, as long as the feds have the power to tax they will. Even without the noxious 16th Amendment, the feds would still have the constitutional power to tax and they will. But the key is cutting the feds to about 1/5 it’s current size and requiring a low flat income tax.

If the 16A were repealed miraculously, wouldn’t it be nice to go back to the simple constitutional idea of taxing the states, not the people, directly based on proportional census (Art I, Sec 9, Cl 4)? Even now, ONLY legal appropriations justify Treasury withdrawal with regular published accounting of receipts and expenditures (Art I, Sec 9, Cl 7). The federal government acts are generally so unconstitutional.

[fini]

I understand your thought process, but I would flip it. Have companies pay no taxes and have citizens pay all of the taxes.

Why you ask? Because taxes on companies are hidden from the taxpayer, so generally the public doesn't care.

Most of my friends are reasonably well informed and intelligent, but they generally cannot say more than a few words about corporate taxes and almost none of them know that the US has one of the highest (if not the highest) corporate tax rate.

Also think of the benefit our corporations would have in sending goods overseas.

[itsahoot]

Ted Cruz says that his tax on the value added by a business is not a VAT!

Obamacare is not a tax either unless it needs to be.

[Savage Rider]

Forbes may consider it a Value Added Tax, but it is what it has always been, a tax on the gross profit of a business. A business pays it now and we don’t call it a VAT.

[Jim W N]

Consider a loaf of bread. Say the farmer sells the wheat to a miller for 25 cents. Assuming the farmer has no deductible expenses, the initial tax would be 4 cents (16 percent of her 25 cents of income). The miller grinds the wheat and sells flour to a baker for a dollar. His value added is 75 cents, which is subject to 12 cents of business flat tax. The baker sells the loaf of bread for $2 and remits another 16 cents of tax on her $1 of value-added. The total tax adds up to 32 cents, or 16 percent of the final sale price.

That is a VAT my FRiend. You can quibble about titles but that is beside the point. This is what Cruz is proposing and it would be a disastrous intrusion of MORE federal government into our private businesses and lives not to mention a more costly process equalling more hidden tax to the consumer.