Business Activity Taxes
The concept of taxing value added continues to receive substantial attention at the federal and state levels.
Eliminating the federal corporate income tax and substituting a value added tax for it and perhaps for all or part of the federal individual income tax interests many people for many complex reasons. The most lasting one is economic competition. Nearly all the major industrial nations have value added taxes. This and the provision of the international agreement on trade and tariffs means: (1) when Mercedes sells a German-made car in Germany, the price includes a value added tax of over 10% but when it sells the same car in the U.S. the 10% is subtracted but (2) when Ford sells an American-made car in the U.S. the price includes U.S. and stateq corporate income taxes and when it sells the same car in Germany the corporate income tax
burden cannot be subtracted.
A value added tax was adopted in Michigan several decades ago for a different reason. Most corporate income tax revenue in Michigan came from the production of vehicles, vehicle parts, and capital goods, like machine tools — all subject to business cycles. Some years, nearly all these manufacturers would have losses and with no income to tax would pay no state corporate income taxes, at a time when the state government most needed revenues. In good years, these companies would make large profits and pay large sums to the state. By shifting its tax base from profits to value added, Michigan reduced the volatility of its revenues.
Value added taxes have been seriously considered for other states, such as Louisiana, and have some highly respected advocates such as a prominent former director of the National Association of State Budget Officers. This family of proposals typically involves using a value added tax as a replacement for the corporate income tax and, in some instances, other taxes. Business activity taxes are conceptually similar to value added taxes but are normally discussed as overlays to existing corporate income taxes and in the few states without corporate income taxes.
Tags: credit score, financial crisis, fiscal regulations, forex, getting out of debt, home foreclosure, realtors