From: lintz@fred.cis.udel.edu (Brian Lintz)
Subject: Re: Citizens for Tax Justice (was Re: Jerry Brown's Tax)
Organization: University of Delaware, Newark
Date: Mon, 6 Apr 1992 17:16:50 GMT

In article <6APR92.02212324@umbc2.umbc.edu> williamf@umbc2.umbc.edu writes:

>>Despite what Clinton says the Value Added Tax is NOT a sales tax,
>>it is a tax on the profits of business. 

>  You mean Clinton was REALLY lying to us all along?  Again?  The VAT 
>  in Europe & Britain is tacked right onto the list price.  The customer
>  pays it at the POS and the retailer is responsible for collecting it and
>  forwarding it to the government.  That surely appears to be a sales tax 
>  to me.  How is going to differ in the US?  

This is how it works in Europe, maybe, but as I said, it is a tax on
the profits of business. A business takes its income, deducts the costs
of materials, etc, and multiplies by 13%, and that is how it will pay
taxes. Either Clinton doesn't understand this, or yes, he's been
lying.

>>Some people claim that the 13% will be passed on, but there are two arguments 
>>against this. First, right now businesses pay a corporate tax of 35%, which 
>>they would no longer pay under Brown's system. Do they pass this 35% on
>>to the customer? If they do, then they will only pass on 13% instead
>>of 35% under Brown's system. If they don't now, what makes you think
>>they will under Brown's system? 

>   Brown's 13% figure, I have heard, didn't simply come out of thin air.  It 
>   was a CBO figure calculated several years back.  Back then it was noted 
>   that very few companies pay the prevailing corporate tax given the plethora
>   of tax write-offs and deferred income opportunities that are available to
>   businesses.  Hence the actual average corporate tax was closer to 13%.
>   If every business had to pay 13% on income regardless of losses the 
>   incentive to pass on the tax is GREATER under the flat tax than under the
>   current system since individual companies could no longer create artificial 
>   losses or claim development credits etc. or practise pricing policies based
>   on tax planning.

But its not 13% regardless of losses. The tax is on the PROFITS. If
there less profits, there is less tax to pay; if there is no profits,
there is no tax to pay.

>>Second, the market determines the price of the item. If a business could 
>>raise its prices by 13% and still turn a nice profit, don't you think they 
>>would? They won't raise their prices if people stop buying their product 
>>because it costs more than they're willing to pay.

>  Well obviously this argument works only if the average business does pay
>  pay a higher tax than 13%.  But here is a twist on part of your argument.
>  One of the reported problems with the flat tax is that it is regressive.
>  Well, the lower income you are the greater the portion of your income which
>  goes to basic subsistence items like food and clothing and fuel and those
>  item's prices are basically inelastic IMO. 

Ok, but people with lower income also use a large part of their income
toward rent, which cannot be deducted now, but will be able to be deducted
under Brown's system. Also, there will be no Social Security tax, no 
gasoline tax, no other federal taxes except for the so-called "sin" taxes
on alochol and cigarettes.

Brian Lintz
lintz@udel.edu