JOE2010 Wrote: ------------------------------------------------------- > kkent Wrote: > -------------------------------------------------- > ----- > > Of course a 10% VAT is not really a 10% VAT, > it’s > > more like 20% tax. > > > > Example: > > > > Your baseline price now is $100. Since all > > businesses will pay the 10% VAT, they charge > 10% > > more because it now costs 10% more to acquire > > goods/services. So, the new price is $110. Now, > > the end consumer will pay 10% on the $110 = > $121 > > or 21% more than now. Simple math shows us that > > this is totally un-doable. > > > > Notice that the FairTax doesn’t work like the > VAT > > because under a VAT, there is still income tax. > > And according to the proposal, the 10% VAT > would > > be in addition to income taxes to increase > federal > > revenue. > > > You could not be more wrong than this. A 10% VAT > is a 10% VAT only that the consumer pays an extra > 10%. Businesses recover their VAT as input > credits, they just pass it on to the final > consumption point. Umm, yes, that was the example… Businesses raise their prices because they also pay the 10% VAT. What used to cost $100 now costs the business $110, so to get equal profit margin, they raise their prices 10% to $110. The consumer then pays for a good/service at $110, at which point they are taxed $11. Therefore, the net harm to the end consumer (i.e. normal people) is an effective 21% increase in prices.
kkent Wrote: ------------------------------------------------------- > JOE2010 Wrote: > -------------------------------------------------- > ----- > > kkent Wrote: > > > -------------------------------------------------- > > > ----- > > > Of course a 10% VAT is not really a 10% VAT, > > it’s > > > more like 20% tax. > > > > > > Example: > > > > > > Your baseline price now is $100. Since all > > > businesses will pay the 10% VAT, they charge > > 10% > > > more because it now costs 10% more to acquire > > > goods/services. So, the new price is $110. > Now, > > > the end consumer will pay 10% on the $110 = > > $121 > > > or 21% more than now. Simple math shows us > that > > > this is totally un-doable. > > > > > > Notice that the FairTax doesn’t work like the > > VAT > > > because under a VAT, there is still income > tax. > > > And according to the proposal, the 10% VAT > > would > > > be in addition to income taxes to increase > > federal > > > revenue. > > > > > > You could not be more wrong than this. A 10% > VAT > > is a 10% VAT only that the consumer pays an > extra > > 10%. Businesses recover their VAT as input > > credits, they just pass it on to the final > > consumption point. > > Umm, yes, that was the example… > > Businesses raise their prices because they also > pay the 10% VAT. What used to cost $100 now costs > the business $110, so to get equal profit margin, > they raise their prices 10% to $110. The consumer > then pays for a good/service at $110, at which > point they are taxed $11. Therefore, the net harm > to the end consumer (i.e. normal people) is an > effective 21% increase in prices. Well, in a simple way; VAT paid by a business is the difference between output tax and input tax, or VAT on sales less VAT on purchases. Technically the impact of VAT is to increase prices to the consumers by the percentage of the tax only. Using your example, the business would claim the $10 paid, thus net impact would and should be zero. That said, like all other taxes it has an administrative cost - but that will never double the cost. On a different and polite note, you should pay a bit more attention to what am saying - I am a qualified accountant who has worked on this stuff in Anglo countries for years.
You’re a qualified accountant who can’t communicate because what you’re saying doesn’t make sense. All–ALL–purchases, under a VAT, have a 10% tax on them in our example. Therefore, when a business purchases inputs (i.e. lumber, gasoline, aluminum) to create its products, it will pay a 10% premium for those goods (businesses are consumers too and must pay those taxes unless the gov’t exempts them). In turn, they will raise their prices at which point the consumer pays a fixed percentage tax on a higher base. I can’t just take your word for it. Instead of just saying so, you need to explain how the business nets out in this example. How is the net impact zero? It’s zero if they raise their prices. Even if you assume a business can write it off on their taxes at the 33% tax rate, that still raises the base price $6.67.
It depends with whom am communicating with:) VAT is not a cascading tax(a tax on a tax), as opposed to a sales tax - and at every stage businesses act as “collection points” - for onward transimission to the final consumer. The bottom line is that the final cost is met by the last point - the consumer. Costing is a different thing. I think that is very simple to understand for the average man.
Once again, you explained nothing, and did it very arrogantly at that! I’m ok with gaining knew knowledge–it’s not a big deal if I’m “wrong”, I just want you to explain this to me: Small Business A purchases $100 in lumber to make tables. Small Business A pays $10 in federal VAT to make the total purchase price $110. With no VAT, the cost to acquire lumber is $100. With VAT it is $110. Is this or is this not correct? If it is incorrect, could you please explain, with numbers, how it is not correct? Saying generically that it is a “costing method” and leaving it at that is not helpful. Are you saying that businesses are exempt from VAT? If you are, then that’s great! You could have simply said that 5 posts ago.
Once the purchase price is $ 110, the business will mark up it’s purchase cost - by say 25% to make the selling price 137.5, of which the consumer will pay a 10% VAT, of $13.75. The businessman collects this 13.75, nets out his $10, and pays the tax man $3.75 as VAT. The logic is - at that stage, only $3.75 was paid to the taxman, but in the chain of business (Manufacturer-Wholesaler-Retailer-Consumer) varying proportions have been paid. “With no VAT, the cost to acquire lumber is $100. With VAT it is $110. Is this or is this not correct? If it is incorrect, could you please explain, with numbers, how it is not correct?” To the extent that this increment of $10 is recoverable, we can not say the cost is $110. If it were not, then the case would be otherwise.
Ok, ok. So since the business paid $10 in taxes, the business can recover that expense. It takes the $13.75 paid by the end consumer and nets it out and sends $3.75 to Uncle Sam. So the business ends up paying nothing additional. I do still see an issue with this. Maybe I’m wrong, but the business can do 1 of 2 things: add its standard 25% mark-up on the $110 instead of $100, which will end up costing the end consumer more money, or it can add its standard 25% mark-up to the $100 base, at which point it will end up worse off because of the original cost of the tax. So what a business would have to do is fenangle its mark-up for there to be some break even point from today’s base. Either way, it seems like someone is going to be worse off, either the business (net income) or the consumer (base price of good before VAT is added). I’m not sure.
kkent Wrote: ------------------------------------------------------- > I do still see an issue with this. Maybe I’m > wrong, but the business can do 1 of 2 things: add > its standard 25% mark-up on the $110 instead of > $100, which will end up costing the end consumer > more money, or it can add its standard 25% mark-up > to the $100 base, at which point it will end up > worse off because of the original cost of the tax. > So what a business would have to do is fenangle > its mark-up for there to be some break even point > from today’s base. Either way, it seems like > someone is going to be worse off, either the > business (net income) or the consumer (base price > of good before VAT is added). I’m not sure. This is not likely - remember there are competitors and pricing is a sensitive issue. The person who suffers is the consumer, individuals or business as the case may be. I agree, some businesses chose to absorb these costs - but that entirely is a commercial decision and upto them if it makes sense that way. That said - VAT is one of the most effective ways affecting consumption patterns, especially where price is the deciding factor. Instead using stupid phrases like buy American, just slap cheap chinese toys with a 15% VAT and zero rate(0%) the ones made in the US. Competition moves from price to quality, and we know who wins.
Ok, I can be open minded to something like this. Although my preference would be to cut spending a lot and to balance the budget. I’m willing to pay higher taxes if–IF–I believe the US will be better off for it. But I’m not convinced that adding this tax and then more spending is the best solution. But as far as a last ditch effort to keep the U.S. debt from spiraling out of control, I can at least be open minded to this. This is kind of weird to say, but thanks for the explanation? Is that right?
PtrainerNY Wrote: ------------------------------------------------------- > Here’s a solution… > > 1. CUT THE DAMM SPENDING. > > 2. Take away pensions from government employees > and give them 401ks. Then instead of staying in > the same position for 30 years, they will move > around. > > 3. No Universal Healthcare. A nice idea would be to cut military expenditures, but I can promise you if any tries it, the industrial war machine would get middle america into an uproar.