> Concrete is subject to VAT, but it's _reclaimable_ when you charge rents for rooms.
That just prevents it from being charged twice. It's the same thing as saying that the tenant doesn't have to pay the VAT that the landlord has already paid.
> The effective rate of VAT for successful businesses is zero.
There is clearly some kind of fallacy happening if a transaction occurs, the government receives non-zero tax revenue, yet the effective rate is calculated as zero.
Income taxes and consumption taxes are effectively the same thing. The seller's income is the buyer's consumption. The taxes always come out of the surplus between the seller's cost of production and the value to the buyer, and who really pays depends on who would otherwise have had the market power to claim that part of the surplus, not whether you call the tax an income tax or a consumption tax.
In practice VAT is very similar to corporate income tax. The main difference (and benefit) is that VAT is paid to the jurisdiction where the end product is sold, rather than whatever arbitrary jurisdiction the company arranges for its profits to be declared in.
> That just prevents it from being charged twice. It's the same thing as saying that the tenant doesn't have to pay the VAT that the landlord has already paid.
Well, no it's not. If you rent a room from Trump, it matters a lot whether you pay the VAT for the concrete or Trump does. And you're the one who ultimately pays. Trump pays and reclaims. You don't get to reclaim.
I get that you might not be concerned with who ultimately pays for this stuff, but it matters greatly if you're trying to design a progressive tax system.
> If you rent a room from Trump, it matters a lot whether you pay the VAT for the concrete or Trump does. And you're the one who ultimately pays. Trump pays and reclaims. You don't get to reclaim.
Who pays the tax has nothing to do with who can reclaim what.
Suppose Trump has a local real estate monopoly. Then rents are high and the surplus is going to Trump. Any tax paid by anyone is really paid by Trump, because if it was "paid" by the tenants and Trump didn't lower rents by the same amount to compensate, the tenants would move out of the city because the rental cost would exceed the value of the real estate.
Now suppose the local real estate market is highly competitive. The rents are low and the surplus is going to tenants. Any tax paid by anyone is really paid by the tenants, because if it was "paid" by the landlords and they didn't raise rents by the same amount to compensate, the rents wouldn't be enough to cover costs.
Taxes are always paid out of surplus. Whoever would otherwise be getting the surplus is the one really paying the tax. If part of the surplus was going to landlords and part to tenants, they would each be paying part of the tax.
Now notice what happens with VAT. If Trump has a monopoly then he pays $100 in construction and the tenant pays $500 to rent, and VAT is owed on $500. If Trump is in a competitive market then he pays $100 in construction and the tenant pays $120 to rent, and VAT is owed on $120 even though the rental was worth $500 to the tenant, and the tenant gets to keep the $380 difference untaxed. So who pays VAT and who doesn't? It isn't collected on the surplus going to the buyer.
That just prevents it from being charged twice. It's the same thing as saying that the tenant doesn't have to pay the VAT that the landlord has already paid.
> The effective rate of VAT for successful businesses is zero.
There is clearly some kind of fallacy happening if a transaction occurs, the government receives non-zero tax revenue, yet the effective rate is calculated as zero.
Income taxes and consumption taxes are effectively the same thing. The seller's income is the buyer's consumption. The taxes always come out of the surplus between the seller's cost of production and the value to the buyer, and who really pays depends on who would otherwise have had the market power to claim that part of the surplus, not whether you call the tax an income tax or a consumption tax.
In practice VAT is very similar to corporate income tax. The main difference (and benefit) is that VAT is paid to the jurisdiction where the end product is sold, rather than whatever arbitrary jurisdiction the company arranges for its profits to be declared in.