In my post last Friday about what Buffett would pay under 9-9-9, I mentioned that many consider the business taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. component of 9-9-9 to be something more akin to a Value Added Tax (VAT). This does seem more likely now that a) the campaign has not denied it, and b) the campaign released their calculations of revenue, revealing that the business tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. would be $9.5 trillion, about 9 times larger than the current corporate tax base.
However, the campaign keeps us guessing as they’ve changed the website a bit over the weekend, such that the business tax base is now described as: “Gross income less all purchases from other U.S. located businesses, all capital investment, and net exports.” It used to read: “Gross income less all investments, all purchases from other businesses and all dividends paid to shareholders.” So dividends are no longer deductible, but exports are?
If the business tax is essentially a VAT, then this is another 9 percent consumption taxA consumption tax is typically levied on the purchase of goods or services and is paid directly or indirectly by the consumer in the form of retail sales taxes, excise taxes, tariffs, value-added taxes (VAT), or an income tax where all savings is tax-deductible. in addition to the sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. , so the total consumption tax would be 18 percent (or 27 percent if one consumes all of their income). That doubles (or triples) the numbers I’ve been using in my two analyses of what Buffett would pay under 9-9-9, and, likewise, doubles (or triples) the incentive to save and invest rather than consume. But as I mentioned in my post last Friday, it becomes less appropriate to compare these 9-9-9 taxes to what Buffett pays currently in federal income and payroll taxes without also taking into account his share of the corporate tax. This is the largest of the “invisible taxes” that Herman Cain has recently mentioned.
The bottom line is that we could use some more clarity from the Cain campaign regarding the business tax component.Share