Whoa, Nellie!! Will the last business and productive citizen leaving CA please turn out the lights? (If greenie induced energy shortages haven't already accomplished that..)
examiner.com
California is going to have a VAT
Or at least, California might be the first US state to have a VAT. This would be another step on the road to California becoming like Europe, where all of the nations do indeed have a VAT.
The questions is, whether the plans to reform the California taxation system get passed or not. The proposal is that:
To offset the income tax reduction, the commission would create a wide-ranging business tax that would encompass virtually every corner of California capitalism, including the service sector -- lawyers, engineers, business consultants -- that currently are not taxed. Such businesses are viewed as growth industries.
After a five-year transition period, the new business tax is expected to be about 4% on net receipts -- gross receipts minus the cost of purchases from other businesses. The current corporation tax would be eliminated the first year.
That is the very essence of a value added tax or VAT. Every business pays out the tax on their inputs, every business charges the tax on their outputs. Then at some agreed point (in Europe it can be from every three months to every month, depending upon the country and the size of the business) a calcuation is made of how much has been paid out and how much collected and then the net sum is sent to the taxman.
The effect is (after a few cashflow issues have been worked out) that the business is collecting tax on the value added by the business itself. It is of course the consumers who are actually paying the tax.
Now a VAT is not a bad taxation system: it's a tax on consumption which is less likely to be changed by taxation than either labor or capital investment is. So, given that we do need to raise money to pay for government we ought to raise it in the least damaging way possible.
However, there is a downside to a VAT. Because the tax is paid in increments, little parts of it all through the supply chain, it is much more difficult to avoid than is a sales tax. Taxes which are much more difficult to avoid tend to go a lot higher in their rates than ones that can be avoided.
Now of course, the politicians are setting this at 4% of net receipts now, but who ever heard of a politician who doesn't want to have more of your money to spend?
If I might take this opportunity to scare you out of your Birkenstocks? The minimum (yes, minimum) rate for most goods in Europe is 15%. And in places like Sweden it's 25% on almost everything, including food.
A VAT is also highly regressive: it takes a larger portion of the incomes of the poor than it does of the incomes of the rich because the poor spend more of their money while the rich save more.
It's going to be interesting to see what actually happens.... |
