# Presentation: 135710

## The Business Transfer TaxforComprehensive Reform of theFederal Tax Code

- Presented by
- David A. Hartman
- The Lone Star Foundation
- 10711 Burnet Road, Suite 330
- Austin, Texas  78758

- Phone:  512.339.9771                                               Website: lonestarfoundation.org Fax:      512.997.7826                                                Email: dahartman@hartman-llc.com

## Recommendation For Comprehensive Reform of the Federal Tax Code by Adoption of the “Business Transfer Tax” (BTT):

**A Subtraction Method Value Added Tax (VAT)**
**Consumption Based by Expensing Fixed Investment**
**Border Adjusted by Taxation of Imports and Crediting**
**  ****of Exports**
**Replaces Three Quarters of Federal Taxes**
**Supersedes all Income and Wealth Taxation**
**  ****(other than Individual Social Insurance Taxes)**

## The BTT Base is Determined:

- for Commercial Activities:
- 			All Revenues
- 			less:	 Export Sales
- 			less: 	 Purchase of Goods & Services
- 				   (Including Fixed Investment)
- 			plus:	 _All Imported Purchases_
- 			equals: 	BTT BASE
- for Governments & Not-For-Profits:
- 			All Employment Expenses
- 			plus:    _All Imported Purchases_
- 			equals: 	BTT BASE

## The BTT Supersedes the following Federal Taxes:	

- Individual Income Taxes
- Corporate Income Taxes
- Employer Social Insurance Taxes
- Estate and Gift Taxes
- Custom Duties

## BTT SINGLE TAX RATES

- Tax Revenue Neutral: 17.0%  BTT
- Tax Burden Neutral:	  18.2%  BTT

## The BTT Prevents Regressivity

- Provides rebates to all citizens of the BTT tax on:
- Family based poverty level income
- Charitable giving
- Home mortgage interest
- Taxes income above poverty level proportionate to consumption
- Terminates Capped Employer Social Insurance
- (but Retains Federal Match of Individual Contributions)

## MISCONCEPTIONS ABOUT THE BTT

**Border Adjusted Taxation via the BTT is **_**NOT**_** Protectionism – It Only equalizes the Competitive Hurdles for U.S. Producers.**
**VAT Taxation was **_**NOT**_** the Cause of Runaway Welfare Spending in Europe – It was Due to Adopting VAT Taxes **_**In Addition to**_** Rather Than **_**Replacement of**_** Income Taxation As Proposed for the BTT.**
**Border Adjusted Taxation is the Only Realistic Basis for Equalizing Prices to End the Trade Deficit Hemorrhage and the Manufacturing Crisis.**

##   ECONOMIC PROBLEMS     Addressed by	BTT REMEDIES 	
● The Manufacturing Crisis		● Border Adjusted Taxation
● Saving for Investment Deficit 		● Consumption Taxation
● Outsourcing of Services 	 	● Border Adjusted Taxation
● Relocation of Corporations 		● End Corporate Income Tax
● Declining Labor Incomes Share 	● Exempt Investment for Growth
● Increase Growth of all Incomes 	● All BTT Remedies
●Terminate Complex and Inefficient	●Simple, Broadest Base for Lowest Income Taxes			      Rate BTT 

(See Appendix for Details)

**●**** ****The Manufacturing Crisis****	****	****● ****Border Adjusted Taxation**
**●**** ****Saving for Investment Deficit ****	****	****●**** Consumption Taxation**
**●**** ****Outsourcing of Services ****	**** ****	****● ****Border Adjusted Taxation**
**●**** ****Relocation of Corporations ****	****	****●**** End Corporate Income Tax**
**●**** ****Declining Labor Incomes Share ****	****●**** Exempt Investment for Growth**
**●**** ****Increase Growth of all Incomes ****	****● ****All BTT Remedies**
**●****Terminate Complex and Inefficient****	****●Simple, Broadest Base for Lowest Income Taxes****	****	****	****      Rate BTT **
**(See Appendix for Details)**

## APPENDIX

## APPENDIX AThe Manufacturing Crisis

- Foreign Producers are More Competitive than U.S. Producers Due to the Price Advantage of Border Adjusted VAT Taxes. (see EXHIBIT A-I & A-II)
- Manufacturing has declined more than 50% as % GDP from the Mid-Sixties to present. (see EXHIBIT A-III)
- Since 1998 alone the Manufacturing Sector has   terminated 20% of its employees – its worst layoff since the Great Depression. (see EXHIBIT A-III)
- The U.S. now produces only $2 of every $3 of goods consumed. (see EXHIBIT A-IV)
- NAM has cautioned that the decline of manufacturing “risks loss of critical mass”.

## FOREIGN VAT TAXATION

**	****	****	****	****	****	**_**Standard VAT RATE**_*****
**EU-15 Countries, Average:****	****	****	****	****19%**
**China:****	****	****	****	****	****	****	****17%**
**Canada:****	****	****	****	****	****	****15%**
**Mexico:****	****	****	****	****	****	****15%**
**30 OECD Countries:****	****	****	****	****18%**
***Or border adjusted tax equivalent**
**(Source: EU-15 and OECD Data, Misc. Websites)**

**EXHIBIT A-I**

## COMPARISON OF U.S. VS. FOREIGN VAT ADJUSTED PRICES FOR COMPARABLE COST PRODUCERS(Assumes Average OECD VAT Rate)

- COMPARISON OF U.S. VS. FOREIGN VAT ADJUSTED PRICES FOR COMPARABLE COST PRODUCERS(Assumes Average OECD VAT Rate)

- DAH/LSF/5-05

|  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- |
|  |    SOLD IN U.S. MARKET |  |   SOLD IN FOREIGN MARKETS
 |  |  |
|    U.S. PRODUCTION | 
F.O.B. PRICE | 
$1.00 | 
F.O.B. PRICE |             
            $1.00 |  |
|  | (Incl. U.S. Taxes) |  | plus: VAT ADDED |               0.18   |  |
|  | SELLING PRICE | $1.00 | SELLING PRICE |             $1.18 |  |
|  |  |  |  |  |  |
|    FOREIGN PRODUCTION |  |  |  |  |  |
|  | F.O.B. PRICE | $1.00 | F.O.B. PRICE |  |          $1.00 |
|  | less: VAT REBATE |  (0.18) | less: VAT REBATE |  |           (0.18) |
|  |  |  | plus: VAT ADDED |  |            0.18 |
|  | SELLING PRICE | $0.82 | SELLING PRICE |  |          $1.00 |

**EXHIBIT A-II**

## EXHIBIT A-III

- DAH/LSF/5-05

**EXHIBIT A-III**

## EXHIBIT A-IV

**EXHIBIT A-IV**

## APPENDIX B EFFECT OF THE MANUFACTURING CRISIS ON U.S. EMPLOYMENT

**The Average Hourly Real Wage of Production Workers, has Declined 13% since 1978.**
**    **(Source: 2001Statistices for All Manufacturing, Census Bureau)
**The Displacement of Manufacturing Employees to Highly Price Elastic Employment in Services has Contributed to Stagnation of Income for 90% of U.S. Employees. **(see EXHIBIT B-D)
**This Income Stagnation Coincides with both the Production Gap and the Preceding Adoption of Foreign VATs that are a Principal Cause. **(see EXHIBIT A-IV)
**Progressive Taxation as Measured by the Income Tax Share Top 10% of Incomes Appears to Negatively Effect Incomes of the Other 90% due to Real Incidence of Capital Taxation on Labor. **(see EXHIBIT B-I)

## EXHIBIT B-I

**EXHIBIT B-I**

- DAH/LSF for

## APPENDIX C OUTSOURCING OF SERVICES

- The surplus in  Services is Declining due to flight of Corporations to Foreign Tax Havens with Territorial Corporate Taxation, and Outsourcing of White Collar Services Abroad
- (See EXHIBIT C-I)

## EXHIBIT C-I

**EXHIBIT C-I**

## BTT ADVANTAGES OVER ALTERNATIVES

|  | Consumption Based | Border Adjusted | Marginal Rates | Income Distribution | Economic Growth | Simplicity |
| --- | --- | --- | --- | --- | --- | --- |
| Current Tax Code | No | No | Highest | Worst | Lowest | Worst |
| Flat Tax | Yes | No | Lowest | Improved | Better | Good |
| Consumed Income Tax | Yes | No | Lowest | Improved | Better | Good |
| Retail Sales Tax | Yes | Yes | Higher | Better | Higher
 | Best |
| Credit Invoice VAT | Yes | Yes | Higher
 | Better | Higher
 | Good |
| BTT & Retail (50/50) | Yes | Yes | Lower | Good | Higher
 | Good |
| Business Transfer Tax | Yes | Yes | Lowest | Best | Highest | Good |