Posted by Kromey at 6:09pm Jan 27 '11Your title may as well have read "Conservatives are not liberal", for all the value there was in it. /sarcasm
Replace the income tax with a tax system much more akin to what the rest of the world -- and "other civilized nations", as liberals are so fond of comparing us to -- uses. I'm talking, of course, of a value-added tax.
Why is it economical for factories in the US to be closed, only to have the exact same factory open up in China? Well, there's of course the lower wages Chinese workers will work for, but that's offset somewhat by the fact that there's fees and other costs involved in importing those goods into the country.
Really, the problem is that American-based companies are severely handicapped by what amounts to an unfair taxation system. Forgetting for a moment wages, minimum wage laws, import fees/tariffs, etc., and assume for the sake of argument that manufacturing a widget costs the same whether it's made in the US or made in China. Let's say it costs $1 to make that widget, and that it is sold for $2. That's a profit of $1.
When that widget is sold in the US, that $1 profit goes into the company's coffers. The US government then taxes that profit, taking 25% (the exact number varies based on the company's overall income, but this is good enough for the argument), leaving 75 cents in the company's coffers.
The catch is that this is true regardless of where that widget is sold. If it is sold in the EU, the widget is also subject to VAT. This means that US-based companies get double-taxed: First on the sale of the widget, and then again on the profit they made on the widget. Foreign companies are not subject to US income tax, so they pay only the VAT, unless they're selling their goods in the US, in which case they (may) pay US income tax on only those goods sold in the US, but do not get double taxed.
This creates a massive economical disparity, and makes it cheaper for companies to move their headquarters outside the US to avoid this double-taxation nightmare. That takes countless jobs away from US workers.
If the overly complex US income tax code were replaced with a simple VAT, this double-taxation would disappear, removing a significant reason that companies choose to base their operations outside our borders.
It would also, without any modification, be inherently progressive, as people with larger incomes tend to also be larger spenders.
"But what about the poor who can't afford to be taxed?"
Prebates. Calculate how much tax would be taken in on poverty-line spending in a month (or a quarter, or whatever), and send out checks to everyone for that amount; the net result being that no one pays taxes on poverty-level spending, with taxation effectively starting beyond that.
Alternatively, you could implement a system similar to the food stamp or other welfare programs, where people could apply for a special ID card that would exempt them from paying the tax altogether if their income is below a certain point.
This system also encourages people to save money for their retirement, as they no longer have any money withheld from their paychecks (more take-home pay) and pay no tax on income from investment; they'd pay only when they take that money out and spend it during their retirement years. It likewise encourages saving/investing for other purposes, e.g. buying a home.
Replace the income tax with a tax system much more akin to what the rest of the world -- and "other civilized nations", as liberals are so fond of comparing us to -- uses. I'm talking, of course, of a value-added tax.
Why is it economical for factories in the US to be closed, only to have the exact same factory open up in China? Well, there's of course the lower wages Chinese workers will work for, but that's offset somewhat by the fact that there's fees and other costs involved in importing those goods into the country.
Really, the problem is that American-based companies are severely handicapped by what amounts to an unfair taxation system. Forgetting for a moment wages, minimum wage laws, import fees/tariffs, etc., and assume for the sake of argument that manufacturing a widget costs the same whether it's made in the US or made in China. Let's say it costs $1 to make that widget, and that it is sold for $2. That's a profit of $1.
When that widget is sold in the US, that $1 profit goes into the company's coffers. The US government then taxes that profit, taking 25% (the exact number varies based on the company's overall income, but this is good enough for the argument), leaving 75 cents in the company's coffers.
The catch is that this is true regardless of where that widget is sold. If it is sold in the EU, the widget is also subject to VAT. This means that US-based companies get double-taxed: First on the sale of the widget, and then again on the profit they made on the widget. Foreign companies are not subject to US income tax, so they pay only the VAT, unless they're selling their goods in the US, in which case they (may) pay US income tax on only those goods sold in the US, but do not get double taxed.
This creates a massive economical disparity, and makes it cheaper for companies to move their headquarters outside the US to avoid this double-taxation nightmare. That takes countless jobs away from US workers.
If the overly complex US income tax code were replaced with a simple VAT, this double-taxation would disappear, removing a significant reason that companies choose to base their operations outside our borders.
It would also, without any modification, be inherently progressive, as people with larger incomes tend to also be larger spenders.
"But what about the poor who can't afford to be taxed?"
Prebates. Calculate how much tax would be taken in on poverty-line spending in a month (or a quarter, or whatever), and send out checks to everyone for that amount; the net result being that no one pays taxes on poverty-level spending, with taxation effectively starting beyond that.
Alternatively, you could implement a system similar to the food stamp or other welfare programs, where people could apply for a special ID card that would exempt them from paying the tax altogether if their income is below a certain point.
This system also encourages people to save money for their retirement, as they no longer have any money withheld from their paychecks (more take-home pay) and pay no tax on income from investment; they'd pay only when they take that money out and spend it during their retirement years. It likewise encourages saving/investing for other purposes, e.g. buying a home.
Wow, really? - Kromey