Friday, June 19, 2015

EXPOSED Rand Paul's Call for a Value Added Tax (In addition to a Flat Personal Income Tax)

Much focus has been put on Rand Paul's call yesterday for a 14.5% flat personal income tax. The reporting often stops there, As in: The tax would be 14.5% across the board flat personal income tax, down from as much as 40%, but there is much more to the story,

In addition, to the flat personal income tax, Rand, in his WSJ op-ed that revealed his plan, also called for a value added tax on top of the flat personal tax.

Josh Barro at NYT explains:
In an op-ed in today’s Wall Street Journal, Senator Rand Paul announced his tax plan. While Herman Cain had his 9-9-9 plan, you can think of Mr. Paul’s approach as the 14.5-14.5 plan: He would replace all of today’s federal taxes with a 14.5 percent flat personal income tax and a 14.5 percent value-added tax.
Yes, a VAT. A tax on goods and services that would generate twice as much revenue as his proposed income tax — $2 trillion a year, according to the Tax Foundation analysis that Mr. Paul cites in his op-ed. But please don’t call it a VAT. Mr. Paul calls it a “business-activity tax.”
Steve Moore of the Heritage Foundation, who is an economic adviser to Mr. Paul, was more blunt in an interview. “It’s a tax on consumption,” he said.
Rand attempted to muddy up what he was really up to. Here's Barro again:

In his op-ed, Mr. Paul bragged that his tax would have a lower rate than today’s taxes on business income. He made this comparison:

I would also apply this uniform 14.5% business-activity tax on all companies — down from as high as nearly 40% for small businesses and 35% for corporations. This tax would be levied on revenues minus allowable expenses, such as the purchase of parts, computers and office equipment.

Yes, it’s true that 14.5 percent is less than 40 percent. But it’s an irrelevant comparison because these are taxes on two very different things.

You may notice an important item that is missing from Mr. Paul’s list of “allowable expenses” for businesses to deduct: wages and salaries. That omission — meaning businesses pay tax on their profits plus their employees’ wages — is why his tax has such a large base and collects so much revenue. It’s also what makes the tax a VAT: Once it’s imposed across all companies (and across governments and nonprofits, which would also pay the tax despite its name), the tax base adds up to the value of all the goods and services produced in the economy.

  -RW

10 comments:

  1. In the end the consumer is already paying the taxes and costs related to that product. Now they want to do that twice basically, one hidden and one not.

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  2. The problem is not one of revenue, but spending? Where the hell are the calls to drastically reduce spending? Note the sounds of crickets chirping in the background.

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    1. As long as the money is coming in, the Feds will spend it so the only way to cut spending is to lower the revenue to the absolute minimum.

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  3. Paul lost my vote with this nonsense. Under a 14.5% flat tax, the amount of income tax I pay would triple. Makes me want to vote Democrat.

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    1. And the amount of income tax I would pay would be cut in half.

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  4. Warfare can be broken down into 3 levels: strategic, operational and tactical.

    Strategic (aims, goal) will always win over the lesser two.

    I think that a flat tax with an exclusion of the first $50,000 is a step in the right direction but it cannot include deductions. Is the exclusion per person or household?

    So, I am willing to join Rand Paul in the flat tax. But my willingness to join Rand Paul is only tactical. My strategy/goal is to eliminate income taxes and not to increase the FedGov take.Unless the FedGov is shrunk, tinkering with the tax law ultimately will be of no use.

    If anyone makes their case, credibly, to make the FedGov's 2018/9 budget to be the actual revenue of the two years prior to the budgeted years (2016/7), then I might vote. oh, yeah, and no off budget crap.

    A VAT? Good grief!.

    I would like to like Rand Paul but he keeps getting in the way.

    Not hopeful.

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  5. You can't charge VAT, it taxes the poor along with the rich. You can't have a flat tax, it is regressive. Under this kind of a scheme everyone would have to share in funding government programs, both wealthy and less fortunate. We can't have an even distribution of the pain. Tax the rich! You know, the ones who have more wealth than the lower 90% of all Americans? And while you're redistributing stuff, could you make the same tax lawyers available to the poor that get the wealthy out of paying any tax at all?

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    1. A flat tax regressive? Nonsense.
      If there was such thing as a fair tax it would be this: every person pays the same amount After all, are we not all equal under the law?

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    2. Most people miss the fact about a family of four with $50,000 in income paying no taxes. Do the math! it would only work with one adult and three children under 17 to pay no taxes. How many American families are there with that composition? Actually, of one takes $15,000 in standard deduction and $20,000 in exemptions, $15,000 becomes taxable. At a 14.5% rate that is a tax of $2,175. With a child credit of $1,000 for two children under 17, the tax would $175. Also no one picked up on the ridiculous statement by Paul that the IRS takes the employee's amount of employment tax before the employee even sees it. Ridiculous because the IRS never sees the employment tax because in actuality it is not a tax but a personal investment to provide Social Security for that individual in later years.
      Just as ridiculous is the Tax Foundations ridiculous statement that employees actually pay 15.3% because employers reduce salaries by that amount to compensate for their required matching. What kind of population was this survey taken with 23 million sole proprietorships, 3.5 million partnerships, more than 5 million corporations with C corporations being about 2 million and the remainder are S corporations and LLC's

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