Hollings, (fmr.) Sen. Fritz, “Replace the Corporate Income Tax,” The Huffington Post, 04/21/10

“Unless someone has a better idea, we should eliminate the corporate income tax and replace it with a 2% VAT.  That raises more revenues.  Now we’ve cut taxes and have more money.  This is a politician’s dream.  Then add a 1% VAT to pay for health reform and a 2% VAT to pay down deficits.  To the cries of “regressive, regressive” include exemptions for food, health and housing for the poor.  TV has just reported that 47% of households paid no income tax last week; and multi-nationals like GE paid zero.  Small business corporations have been paying the corporate income tax.  I asked a small business corporate owner if he would like to replace his income tax with a 5% sales tax. He said, “I can take that in a New York minute.”  Finally, if they want to blab politically about taxing the middle-class, remember a VAT is on consumption, not income.

The more you consume, the more you pay. And canceling the corporate income tax, which averages 27%, reduces production’s profit 27%, which reduces the cost to all consumers.  The 5% VAT is a winner for the poor, the middle-class, and the rich, and it is absolutely necessary in the trade war.  One hundred thirty-two countries engage in the trade war with a VAT that’s rebateable on exports.  Producing in the United States for delivery in China, there’s an average payment of 27% corporate income tax, with a 17% VAT added when it arrives in Hong Kong, for a total of 44%.  But producing the same article in China for delivery in the United States, the 17% VAT is rebated when it leaves Hong Kong; arriving in the United States, no income tax, for 44% less cost.  Corporate America’s profits from production in China are not subject to the corporate income tax unless repatriated.  So by canceling the corporate income tax outright you’ve given the same advantage to production in the United States that you have been giving Corporate America to produce in China.  Now Congress has started rebuilding our economy and paying down the deficit.”