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Not really a sale tax, a revenue tax.

The problem is now, that say I'm a large manufacturer that assembles foreign sourced components (from my factories abroad) in the US.

It's a question of where the value is added.

There's free market value, and then there's internal pricing policy.

So let's say that I send components from a Mexican plant to US to make a transmission.  Now the transmission sells for $2400 when assembled, and purchased as aftermarket parts the components are only valued at $600, so there's $1800 in value added through assembly.  

But there's a catch, the corporate tax rate in Mexico is 10% (I'm making this example up) while the US rate is 20%.  

So 10% of $1800 is $180, while 20% is $360.  I save $180 per transmission adding the value in the US.  And worse internal trasnsfers of this sort are rarely taxed, so by adding the value in Mexico instead of the US, I can escape from taxes altogether.

On the books, the company is losing money because they parts are being overvalued in internal transfers so that the Mexican subsidiary bills the American assembly plant for $2400 for the components, so that by the time the product is sold the books say that the company is taking a loss.

It's massive tax fraud, but by impsosing a limited liability levy of 20% the governemnt is able to take in $480 in revenue from our hypothetical case instead of getting screwed over.

Coropate income tax as a percentage of tax revenue has been falling preciptiously for the the past two decades, and that is a large part of the government debt crisis that we face.

So again, I'm saying restate the argument for the government getting revenue from corporate gains by telling the companies that if they think they can get the insurance that they US government is offering them at a lower price in the market, they are welcome to try.

So that way it's their choice to be taxed, and the morality of the argument is changed to the favor of progressives.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Sun Sep 21st, 2008 at 12:30:29 PM EST
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