An American VAT

A VAT is equivalent to a corporate income tax with no deductions except for cost of goods sold. I could see a VAT-equivalent emerging from 80s-era tax reform negotiations, to achieve low rates and make up much of the revenue by radically reducing available business deductions.

You are correct, though in either case it isn't good for the consumer. Corporations usually don't actually pay taxes in actuality; they just pass on the taxes to the consumer in the form of raised prices.
 
You are correct, though in either case it isn't good for the consumer. Corporations usually don't actually pay taxes in actuality; they just pass on the taxes to the consumer in the form of raised prices.

They do some combination of passing the taxes (and deadweight loss) along to customers, employees, suppliers, and owners, depending on how the tax is structured and on the price elasticities of the various factors of production. In the case of sales taxes, VATs, and VAT-like corporate income taxes, I believe you are correct that in most cases, most of the taxes are passed through to the customers.
 

Anderman

Donor
Sorry but you guys are wrong a corporate income taxes, the VAT has to be paid even when the prices for which the goods are sold make a loss for the company. A corporate income tax taxes profits.
 
Sorry but you guys are wrong a corporate income taxes, the VAT has to be paid even when the prices for which the goods are sold make a loss for the company. A corporate income tax taxes profits.

It depends how the corporate income tax determines profits. In its current form, the US federal corporate income tax allows a very broad definition of business expenses to be deducted against revenue, and is indeed very different from a VAT.

A hypothetical corporate income tax that only allowed the cost of raw materials, purchased components, and wholesale goods to be resold as business expenses (but not employee wages, facilities, debt servicing, etc) would be pretty much equivalent to a VAT: in a VAT, the company receives a credit for taxes paid upstream on components and raw materials, while in this hypothetical corporate tax, the company would deduct the purchase price of those same goods, and the tax savings work out to the same amount:

  • Tax saving from VAT credit on taxes paid upstream = purchase price * VAT rate
  • Tax savings from purchase price deduction = purchase price * corporate tax rate.
A gross business receipts tax goes even farther, taxing total revenue with no deductions whatsoever for any kind of business expenses.
 

Anderman

Donor
A corporate tax were large amount of expenses which are necessary for the production of the good in question is not a income tax at all.
 
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