# Eliminate corporate taxes? **URL:** \ **Category:** Great Debates\ **Created:** [February 1, 2004, 5:59pm UTC](https://boards.straightdope.com/t/eliminate-corporate-taxes/227060 "2004-02-01T17:59:47Z")\ **Posts on this page:** 5\ **Page:** 2
**Author:** ![kabbes](https://avatars.discourse-cdn.com/v4/letter/k/e99b99/32.png) [@kabbes](https://boards.straightdope.com/u/kabbes)\ **Post date:** [February 5, 2004, 6:46pm UTC](https://boards.straightdope.com/t/eliminate-corporate-taxes/227060/21 "2004-02-05T18:46:14Z")
> [@erislover](#): > > How does it hide the “true” tax burden?? No one has said why this is yet, and The Economist didn’t indicate why it was less distortive. Surely someone, somewhere can actually expand on this topic. Simply because it makes it darned difficult to work out how much you _actually_ spent on taxes in a given year. If I spend more, my tax burden goes up, but unless I have an idea of how much I actually spend (on non-VAT-exempt items, at that), I don’t really know how much tax I’ve been forced to shoulder. pan ---
**Author:** ![erislover](https://avatars.discourse-cdn.com/v4/letter/e/71e660/32.png) [@erislover](https://boards.straightdope.com/u/erislover)\ **Post date:** [February 5, 2004, 6:53pm UTC](https://boards.straightdope.com/t/eliminate-corporate-taxes/227060/22 "2004-02-05T18:53:19Z")
Hmm. It seems to me that this is so under any tax scheme, though, apart from a strict percentage sales tax. For example, the taxes I pay in gasoline might be less than someone who owns a four door sedan, even if everything else was equal (including the cost of the car), because gas has its own taxes on it. Similar situation for “sin” taxes on alcohol and cigarettes. That being the case, though, it is a lot of work (altering the tax code) to have essentially the same situation. ---
**Author:** ![CarnalK](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/carnalk/32/486_2.png) [@CarnalK](https://boards.straightdope.com/u/CarnalK)\ **Post date:** [February 5, 2004, 7:34pm UTC](https://boards.straightdope.com/t/eliminate-corporate-taxes/227060/23 "2004-02-05T19:34:30Z")
Well **erislover** , if you want to look at a recent real-world model you could look at Canada’s switch to the “Goods&Services Tax” which replaced the old Manufacturer’s Sales Tax. Not a perfect analogue but you might find it instructive. (one thing for sure, it didn’t endear the implementing political party to the public) Here’s the [wikipedia entry](http://en.wikipedia.org/wiki/Goods_and_Services_Tax_(Canada)) for an overview. ---
**Author:** ![kabbes](https://avatars.discourse-cdn.com/v4/letter/k/e99b99/32.png) [@kabbes](https://boards.straightdope.com/u/kabbes)\ **Post date:** [February 6, 2004, 11:11am UTC](https://boards.straightdope.com/t/eliminate-corporate-taxes/227060/24 "2004-02-06T11:11:09Z")
Hmm. I’ve been doing some research on this and as a result I’m beginning to waiver – on VAT being “bad”, at least. Firstly, from an economic “distortive” perspective, I give you a few things: [This is from a slightly tangentially-related United Nations University discussion paper, “Fiscal Policy and Private Investment in Less Developed Countries”](http://www.wider.unu.edu/publications/dps/dp2001-32.pdf) > [@](#): > > Government tax policy is non-distortive when this policy does not influence investment decisions (either in physical or human capital). An example of a non-distortive tax is the value-added tax (VAT). Distortive taxes, on the other hand, do influence the investment decisions of the private sector. In general, many tax policies (with VAT being one of the few exceptions) are seen as distortionary in this respect. Raising labour taxes, for example, may lead to higher wage. Such a rise of wages will depress profitability of private investment. An interesting point. Then we have [This rather more suspect but still intriguing cite](http://www.foundation.bw/VAT10.htm) from something called, disturbingly, “The Foundation”: > [@](#): > > The personal income tax does not encourage saving. Consumption taxes do. A consumption tax is a tax on the sale of goods and services, such as a sales tax or a VAT. The consumption tax encourages saving because no tax is imposed on saving; it is imposed on spending. The tax encourages saving because the less the consumer spends, the lower his tax. With the income tax, the only way he can cut his tax bill is by reducing his earnings. > > Many other countries (in particular, Japan) have much higher savings rates than the US. A low savings rate means that little money is available for investment; this contributes to economic stagnation. An income tax discourages saving, by placing a heavy tax on the return to investment. We can ill afford a tax system that discourages saving. Consumption taxes such as the VAT, on the other hand, encourage saving. If you spend less, your taxes are less. The structure of the tax creates a definite incentive to save. In response to that, I’d have to say that it is somewhat simplistic. Investment is good, but an economy also needs consumption (arguably consumer spending is the one thing keeping the UK and US economies going right now) and it is precisely this that VAT discourages. And then we have a document that in many ways tackles this whole thing head on using empirical evidence: [this from the Balikesir University Department of Economics (IS A VAT THE CHOICE OF REVENUE MAXIMIZING GOVERNMENTS?)](http://www.eurofaculty.lv/taxconference/files/tp_A1/Ozdemir.pdf) > [@](#): > > This article is an empirical investigation of the hypothesis that as the share of broad-based consumption taxes, such as Value Added Taxes (VAT) in total government revenue increase, the government expands at an accelerated rate due to the hidden nature of these taxes… The discussion is actually pretty interesting, if heavy-going and unfortunately the author seems much better at doing the analysis than writing about it afterwards. He’ll never make a consultant. And frankly I remain unclear whether the conclusion is in favour or against VAT from an economic perspective. But I highlight some points. He produces a regression model of the economy to examine some empirical effects of different tax regimes. From Section 4, “Regression Results”: > [@](#): > > The variables representing value added taxes have unexpected negative signs, while all the variables that represent general sales taxes have the expected positive signs. This raises the question of why value added taxes have a different effect on government growth than general sales taxes. > [@](#): > > The regression results using the VAT variables in columns 2-7 of Table 2 show the coefficients of all the VAT variables to have negative signs, except one are significant. Among the results, 2 coefficients are significant at 1%, 5 coefficients are significant at 5%, and 4 coefficients are significant only at 10%. The coefficient of VATGDPL (the value added tax revenue as a percentage of GDP) is the most significant (see equations 4 and 7 in Tables 2 and 3). The significance of the coefficient of VATSHL (the value added tax revenue as a percentage of total tax revenues) is the most consistent. The significance levels of coefficients for VAT variables are similar in explaining the variations in both growth rate of central government expenditures and general government expenditures (see equations 2-7 in Tables 2 and 3). Also, note that the coefficients of VAT variables become more significant when these variables are used with the tax scale variable rather than the expenditure scale variable (see equation 5-7 in Tables 2 and 3). So what does this mean? Unless I’m misreading it, it seems to mean that the higher VAT is, the LOWER the VAT revenue as a percentage of GDP is, and that the regression is highly significant! And that the higher VAT is, the lower VAT as a percentage of total tax is, and this is highly consistent in the data. Bizarre. Which, of course, leads him to his conclusion: > [@](#): > > The results imply that the public choice literature hypothesis that a VAT causes excessive government growth is not theoretically founded. If nothing else, as a small-government proponent, **eris** , I would have thought that this was highly significant to you. The most interesting conclusion comes in section 5: > [@](#): > > Estimated coefficients of the VAT variables suggest a negative relationship between VAT and government growth, while the coefficient of GST variables suggest a positive relationship between GST and government growth. So this is a reiteration: a high sales tax means big government, whereas high VAT does not. He then suggests a few reasons why this might be, which are not really of relevance here. So there you go. I’m still trying to fit these arguments into my framework. After all, they don’t really prove things one way or the other. But they certainly suggest that VAT might not be the distortive, hidden revenue raiser that I have previously thought. pan ---
**Author:** ![erislover](https://avatars.discourse-cdn.com/v4/letter/e/71e660/32.png) [@erislover](https://boards.straightdope.com/u/erislover)\ **Post date:** [February 6, 2004, 2:13pm UTC](https://boards.straightdope.com/t/eliminate-corporate-taxes/227060/25 "2004-02-06T14:13:05Z")
Great find, sir! I’m going to print out all 40 pages of it and see if I can’t get it read today. It sounds like an interesting article. Certainly I like the idea of smaller government, but it is getting harder to know how to support all the well-argued programs you leftier people keep convincing me on with a small government 😉 [Previous page](https://boards.straightdope.com/t/eliminate-corporate-taxes/227060.md?page=1)