Over at Bloomberg View, I have a follow-up to my column earlier this week on Herman Cain’s tax plan. It’s remarkable how many of the fans of that plan don’t understand its most basic features–and one sometimes suspects that Cain is one of the people who don’t understand them. Critics of my column took issue with me, for example, for saying that what Cain calls a “corporate income tax” is actually a VAT, with some of the critics calling me a liar. I plead not guilty:
Today’s U.S. corporate-income tax lets companies deduct wages as a cost of doing business, and that’s what a tax on “net business profits” would do too. Cain’s business tax includes no such deduction, but it does let companies deduct the cost of purchases from other businesses. That’s what a value-added tax does. Perhaps that’s why the scoring report commissioned by the Cain campaign, and available on the campaign website, refers to the tax as a “subtraction method value added tax.”
There are reasonable arguments for a VAT, although I don’t happen to find them persuasive. But a candidate proposing one should call it what it is.
I go to defend, among other things, my statement that the Cain plan has to involve either increased consumer prices or decreased wages.