Senator Ted Cruz of Texas has suggested a taxes plan that involves a rather uncommon tax not presently seen in america. I’m pre-emptively writing this post to try to help people know how this tax would work, because in my experience hardly any American journalists or economists know how it could work even. It’s just a little simpler than the fancy nomenclature would suggest actually, and it could be explained through its similarities with existing U.S.
I’ll make an effort to make this a little easier here. What Is Ted Cruz’s Business Flat Tax? Ted Cruz’s “Business Flat Tax” is exactly what most tax plan experts would call a “tax-inclusive subtraction-method value-added tax” (VAT) or a “business transfer taxes” (BTT). These conditions are pretty technical, so I’ll make an effort to distill them down into something a bit easier.
What this implies, in plainer terms, is that it’s a broad tax on all kinds of income, levied on businesses and organizations. You, personally, wouldn’t have to file it for yourself. Instead, it would be looked after at the organizational level. That will not, of course, mean it’s free.
When businesses pay fees on people’s behalf, it still eventually means that the national government gets some money that otherwise would have gone to people. Further on, we’ll talk about who would finish up losing profits from the existence of this tax. How WOULD IT NOT Apply To an Ordinary Business’s Income? The starting point for a subtraction-method value-added tax is fairly simple, particularly when it comes to everyday private businesses. You focus on most of a business’s revenues.
- Learn about other requirements
- The event itself is too distracting to allow easy conversation; or
- Activist traders have every to be vocal, even if they are wrong
- Public Policy
However, you don’t stop there: a problem with counting all business profits is it ends up being truly a double-counting. For instance, suppose you like watching Disney movies on Netflix. Netflix gets profits from your subscription, and then it uses some of that money to pay Disney for the rights to Disney content.
If we counted that money both at the Disney level and the Netflix level, we’d end up taxing the same basic product double, simply since it involves two different companies. This isn’t good tax policy; that’s why modern tax systems try to avoid this. The way the subtraction-method VAT fixes this is by, well, subtraction.
Under this kind of taxes system, Netflix would count up all of its revenue but then subtract the total amount it pays to other businesses, like Disney. Disney would then have to take into account its own revenue and file taxes. The effect is that everything gets neatly single-counted, and nothing at all gets double-counted.