Get free daily email updates

Syndicate this site - RSS

Recent Posts

Blogger Menu

Click here to blog

Richard Rider

Why I love the VAT (sales) tax and hate the corporate income tax

Okay, okay — that title is a bit of a “click bait” come-on. A more nuanced headline would be “When looking at the VAT/sales tax (hereinafter called simply the VAT tax) vs. the corporate income tax, OF THE TWO I far prefer the VAT tax.”  Too wordy for a headline.

It’s all about truth in taxation.  And the truth is that corporations don’t pay taxes.  Their customers pay the “corporate” taxes.

Corporations COLLECT taxes from their customers in the form of higher prices.  Corporate taxes are almost all “pass through” taxes that customers never even realize that they are paying. In contrast, customers DO see a VAT or sales tax when they make a purchase.  More about that shortly.

Most Corporations in competitive markets have limited options.  To deal with the higher costs of increased taxes and mandates, businesses have do one or more of the following:

  1. Charge customers for the taxes (it’s just another cost of doing business).
  2. Pay their employees less. 
  3. Accelerate automation to lower labor costs.
  4. Reduce hours of operation (retail businesses, primarily).
  5. Relocate their business away from the taxing jurisdictions.
  6. Go out of business.

BACKGROUND:  Most people hate corporations. Villains in perhaps 90% of the big crime/action movies are evil corporations and their CEO’s.  Indeed, for most Americans, calling such businesses “evil corporations” is redundant.  Thank Hollywood, the MSM and our “education” institutions for this mindset.

This reflexive hatred of corporations is accompanied by two misconceptions that greatly skew our policies towards business:


Corporations make “excessive profits.” But no one ever looks at a company’s P&L (profit and loss) statement to see what the profit level really is — let alone defines “excessive profits.”

In a poll a few years ago, the AVERAGE American assumed that the corporate profit level was 36% of a corporation’s revenue.  For every dollar a company received, 36 cents supposedly was profit.

The actual average profit percent?  Generally 6.5% to 7.5%.

And here’s food for thought:  Hated Walmart’s profit percent is generally 2.5%-3.5% of sales, year to year.

The math is not hard.  Look at a P&L. Find gross revenues.  Divide that figure into “net (after tax) profits.”  The result is the percent profit (if any) a company is making.

EXAMPLE:  Walmart’s annual P&L ending January 31, 2021.

  • Gross Revenue:  $555.233 billion
  • Income (profit) before income taxes:  $20.653 billion
  • Corporate income taxes: $6.858 billion (33.2% tax rate)
  • Consolidated Net (after taxes) Profit:  $13.706 billion
  • Percent profit = $13.706 billion/ $555.233 billion = 2.47%


Most believe a company’s taxes (think of mandates as special taxes) will be paid out of profits. This is the classic “something for nothing” promise that people like, and politicians LOVE.  And  THAT’s why I hate the corporate income tax — almost no voters realize that such costs are included in their daily purchase prices — in addition to the sales tax.

The VAT Alternative

Generally Europeans like their big welfare state.  But — to their credit — directly or indirectly, they vote to tax THEMSELVES for the benefits.  I have to admire European for their more honest tax system.  They realize that to have a welfare state, EVERYONE has to pay significantly higher taxes.

In Europe, the Value Added Tax (VAT) is universally understood to be a sales tax, paid by the consumer as a levy on goods and services.

The VAT tax varies from European country to country — from 19% to 27%. It’s charged on most goods, and on many services.  It’s basically like America’s sales tax — on steroids.

People can make more reasonable decisions about how big a government they want only if they fully understand that THEY pay the cost of government.

I should hasten to add that European countries usually have HIGH tariffs, higher gas taxes, and often a personal income tax that zooms upward at lower income levels than in America, where over 40% pay zero federal income tax.  They also have a corporate income tax — they DO need to pay for their welfare state!

IMPORTANT CAVEAT:  I am NOT advocating for America to institute a VAT tax!  I WOULD be willing to consider such a tax if it replaced or reduced another tax.  But no one who advocates such a “national sales tax” is talking about reducing OTHER taxes.  If it comes to the U.S., it will be an ADDITIONAL tax.

My little San Diego Tax Fighters (SD TF) group opposes any additional or higher taxes.  The members fall into one of two groups:

1.  Some of us think taxes are already high enough.  If some additional government spending is necessary, reprioritize the REST of that government’s spending. Stay within the limits of the existing revenue streams.

2.  Others (such as myself) think taxes are TOO high — and that most U.S. government bodies today are obsessed primarily with the REDISTRIBUION of income — robbing Peter to pay Paul and Paula — a function we fundamentally oppose.

But regardless of one’s political views about government tax and spend policies, voters can’t make informed choices if they are gulled into thinking that businesses and not consumers pay for the levies (and the mandates) on corporations.