On 2/2 I wrote
about a bill proposed by Congressman Kevin Brady (R,Tx). The bill would
make the deduction of state sales taxes a permanent part of the tax
code. As of today one can deduct sales taxes but the law allowing this
expires in two years.
What I found interesting was that the (current) deductibility of local
property and state income taxes ("PI") was not included in Brady's’s
bill. The suggestion to me was that as soon as the sales tax issue had
been made permanent, deductions for the other SALT taxes would be
eliminated. I didn’t think that the bill had a snowballs chance in hell
given that it would have opened the door to higher net taxes via lower
deductions. (stealth) This bill would have been very damaging to the big Blue states of CA, Il and NY.
Well, I’m wrong again. Senator Maria Cantwell (D. Wa) has introduced S.24:
To amend the Internal Revenue Code of 1986 to permanently extend the election to deduct State and local sales taxes. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
Cantwell’s Bill has the support of other big Democrats including, Reid,
Nelson, plus some senate republicans; Ensign and Alexander.
With that cast of characters this bill is going to pass. Deductibility of state sales taxes is going to be made permanent. What might this mean?
I think this is the first step towards eliminating the other critical deductions of income and property tax.
That would be an absolute disaster for the big Blues. They all have
high property taxes as well as big income taxes. States like Texas with
no income tax but big sales taxes would win big. (What is Harry Reid thinking of??)
Should this happen it will change the way states generate income. Sales
taxes will rise in every state to take advantage of the permanent
deduction and the loss of deductibility of other SALT taxes. I doubt
that this will be offset by any reductions in PI. Net-net the blues
lose, which is the point of this.
I think this legislative maneuvering is leading us to a point where a national VAT is established.
That would imply that there would be very few if any deductions left.
No mortgage, property or income taxes deductions would exist. We shall
see if that develops, if it does it will change everything. One downside
I foresee is that it would significantly undermine the economics of
home ownership. It would also make it more expensive to have/raise
children. More of those unintended consequences you keep hearing about......
I am convinced that a Tax Holiday is coming for large multinational
corporations who have big bucks stashed offshore due to high US taxes.
This will happen as part of a broader restructuring of corporate taxes.
These big tax breaks will be sold to the public as a “Pro Jobs”. Phooey!
We did this in 2004. That holiday was also sold as ‘pro jobs’. Some
results from the companies who got big breaks seven years ago:
When you see/hear the talk of a Tax Holiday over the next month or so think big dividends for the corporate sector and no dividends for workers.
oh, it was... 1906 or so.
at the tax attorney on saturday...he has the original tax form on his walll....rate was 1% up to 50k in 1913
6% over 500k
if only those were the rates today....let the people keep their money and you'd have all the economic stimulus you'd need in a week
when i was 26, i only had money to spend on non food rent items four times a year....the four months when i got 5 paychecks instead of four
lower the tax rate back where it was and thats like ten more paychecks a year
Isn't it funny that the Congressman from Texas would propose such a thing, knowing full well that his state has no income tax? We have hella property taxes, though, but there is talk of shifting some of that burden to another percent in sales taxes with the guaranteed reduction in property taxes.
I don't really understand what is a VAT. I know my Brit cousins rail against it all the time but what exactly is it?
Sales tax on steroids.
A national sales tax basically but one that is levied at every stage of production as value is "added" to input materials and they become finished goods.
Yep! VAT hits everything at every stage. By the time a good is offered in a store, it has been taxed 20 times already. Imagine the price increases in everything as this tax is, in the end, paid for by the consumer.
Just to clarify: yes, it will have been taxed n times, but the total amount of tax paid by the final consumer will be whatever the VAT rate is, because each previous increment is deducted from the new VAT total and paid back (by the government) to the company that has paid it to the company it bought the item from.
Of course, the administrative overhead for all this monkey business adds to the final cost of the goods, too.
But if you're a Keynesian, any employment is good employment! Ask Krugman.
Concisely put, sir.
For example... in the UK, VAT registered companies have to add 20% to their invoices (on 'standard rate' items), which the next consumer or company has to pay. A VAT registered company, in turn, can deduct all the VAT it has paid from all the VAT it has collected.
So say my company buys a computer for £1200 from a VAT registered company, and sells it for £2400 to a consumer. I will have been charged £200 VAT on the £1200 I paid, and £400 of my £2400 invoice was VAT in turn.
So my company pays our beloved government £200 (£400-£200). In total, the end consumer paid £400, which was collected in chunks by all the companies 'adding value' in the chain.
The government monkeys who come up with this shit are endlessly inventive, I have to say.
That seems to be the bitch.
Who is to say what is added value? It seems rather arbitrary to me.
Go the route of "hedonic adjustments" and a "value" could be added to just about anything. After all, my TV is has much more added value, at a lower price, than the one I put in the trash. Can't wait for this one...
The market decides the Value Added, by the price paid, it's very simple. The advantage of a VAT vice sales tax is that you avoid paying sales tax on the sales tax at multiple times through the product chain. Another advantage is that imports pay full-boat VAT when they arrive "on-shore". Given the US trade deficit, I consider that a feature, not a bug.
If the majority of tax was a consumption tax, then savings and capital formation are not taxed until spent, that is a good thing. The regressive parts of the VAT can be mitigated by policy (exempt groceries, public transport, 1 vehicle (up to median price), 1 residence up to median price)
Who is to say what is added value? It seems rather arbitrary to me.
Quite... of course, it's got nothing to do with 'value': basically, if you've added to the price, and you're a VAT-registered company, you'll be giving the government 20% of that rise to ol' Leviathan.
The tax then would be a tax on your ingenuity and entrepreneurship: The ability to buy low and sell high.
'Cept that won't apply to big corporations or banks or any Wall Street entity.
Isn't it a pretty name? Value Added Tax... brilliant! That 20% is so much easier to shove up our arses when you call it Value Added!
Lube enhanced 5.5" circumference arse phucking tax.
Ain't euphamisms grand?
Yes insn't is beautiful.
Here in Canada we have what is called HST. Guess what that stands for.... Harmonized Sales Tax. Makes me just want to pay it! Exactly the same as Value Added. What ends up happening is a huge under the table industry is created, paying only cash.
not only that but more regressive (harder on the poor, easier on the rich) than either property taxes or income taxes. and its deductibility is, of course, more valuable to the higher rate paying (generally, at least below the truly rich) richer vs. the poorer.
these democrats are working hard to become herbert hoover which makes ron paul the next fdr, poetically speaking. oh the irony.
F%#k em all! Barter system baby. I don't buy anything new anymore unless I have to. If they kill the mortgage interest deduction the shit will definitely hit the fan and splatter in their faces. That would cause a middle class uprising. I know I would be bullshit! If that goes through, I'm liquidating my 201k,(only worth half now) and converting to PM's and squatting in my house until they throw me out. Then I'll move to a Southern state where I don't have to pay as much to heat my house. Then I'll buy a small piece of land in the hills and build a Mother Earth style dirt house in the side of a hill. Of course my wife will think I'm psycho and probably end up divorcing me. She is starting to come around though, starting to see the writing on the wall. She's almost through the denial stage, soon she'll be reading ZH too.
"I don't buy anything new anymore unless I have to."
Now I was thinking this last evening: if the VAT is applied, is it applied to "new-to-me" items that I buy in the second-hand store? If there is no Value Added but value is theoretically reduced, do I get the VAT money back with my purchase? :D (Of course I do...)
Anyone know how that would work with the Goodwill/Salvation Army stores in the US?
No VAT on second hand goods depending on who is selling them, on the premise that it's already been paid up when the item was first purchased. The thing about Value Added tax is that it is the "ultimate" tax; no matter who you are, or what your circumstances, you will be paying...or starving. An excellent way, i suppose, of taxing the unemployed, and the people involved in other forms of tax evasion. Even little children pay VAT on they're pocket money if they buy sweets or toys! Even the beggars get it in the end! How fucked up is that? Taxing the beggars, ive heard it all.
As far as I am aware in all EU countries the tax is not deductible for the general public but only for VAT registered organisations. If a self-employed individual is registered (there's usually a cut-off below which you don't need to register) then only items used for the business are deductible.