November 5, 2015

WE ARE ALL NEOCONOMISTS NOW:

Republicans Learn to Love VAT (Ramesh Ponnuru, 11/05/15, Bloomberg View)

[A] VAT is back on the agenda, and not thanks to Bernie Sanders or some other fan of Scandinavian socialism. The tax is integral to the economic plans of two presidential candidates who want a smaller federal government: Senators Ted Cruz and Rand Paul. Their surprising support for a VAT shows its appeal, its flaws and its complicated politics.

Perhaps because the concept has been controversial among Republicans, or perhaps just because it's not a commonly understood term, both senators avoid using the phrase "value-added tax." Paul talks about a 14.5 percent "business activity tax," and Cruz about a 16 percent "business flat tax."

In both cases, businesses would be taxed on their gross receipts minus their purchases and capital investments. That differs from today's corporate taxes in two crucial respects: All investments would be written off immediately under these plans, and businesses wouldn't be able to deduct wages. That's what makes these taxes VATs.

One way of looking at the VAT is as a tax on wages that's collected from companies before they pay their workers. But wage-earners would come out a bit ahead in both these plans because the new VAT would replace the payroll tax as well as the old corporate-income tax.

Tax what you don't want, not what you do.

Posted by at November 5, 2015 2:19 PM

  

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