The effect of California’s proposed VAT/BNRT 2

We’re still not necessarily convinced that things will remain great. Let’s use a more concrete example: Farmer buys fruit seed at price S. Plants the seed (adds value to it) and sells the fruit at price G. A canned fruit company buys the fruits, cans them, and sells at price C to distribution, distributor sells to Retailer for price D, and retailer finally sells the product to consumer at price P

we should also define some taxes: bnrt is the rate of BNRT, CT is the corporate income tax, ST is sales tax.

current case:
Farmer: pay S, get G, pays tax (G-S)*CT
Canner: pay G, get C, pays tax (C-G)*CT
Distributor: pays C, gets D, pays tax(D-C)*CT
Retailer: pays D, gets P, pays (P-D)*CT
Consumer: pay P, pays tax: (P)*ST

total tax received: (P-S)*CT + P*ST

BNRT case:
Farmer: pay S, get G, pays tax (G-S)*bnrt
Canner: pay G, get C, pays tax (C-G)*bnrt
Distributor: pays C, gets D, pays tax(D-C)*bnrt
Retailer: pays D, gets P, pays (P-D)*bnrt
Consumer: pay P, pays tax: 0
total tax paid: (P-S)*bnrt

if the government wants to keep income the same how much should he set the bnrt?

(P-S)*bnrt = (P-S)*CT + P*ST
bnrt = CT + ST * P / (P-S)
bnrt = CT + ST / ((P-S) / P)

bnrt is to be set as approximately the current corporate tax plus sales tax divided by the gross profit margin of all business processes in the state.

Next time, we should analyse the claimed stability of BNRT resistant to fluctuations in business cycles.

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