# The effect of California’s proposed VAT/BNRT

What is the effect of eliminating sales tax, lowering income tax and establishing BNRT?

The sales tax is lowered to 1/5 of previous, sales tax of nearly 9% or 10% is completely gone, but a tax is added to transactions. The only deductions are house, charitable, and…

For a business, the Business Net Receipt Tax is a percentage of

OUT=\$ listed on receipts I receive while doing business (after paying \$)
IN=\$ listed on receipts I issue while receiving \$ in the process of doing business.

So BNRT a business has to pay is Tax_Percentage * (IN – OUT)

Cool, eh?

Not having income tax and lower sales tax means the money made in California will tend to stay in California (because tax is lower, so it’s not worth it to take the high income and spend it out of state where tax is higher)

One reaction people will have is this: Wouldn’t businesses tend to become more vertically integrated. If the making of a product requires either two companies or three companies, which one would I prefer?

bnrt = bnrt tax rate
r=original raw cost
p=market price for the final product

2 company case:
p1 is the price the intermediate product sells for
p2=p is the price of the final product.
total tax paid is: (p1-r)*bnrt + (p-p1)*bnrt + 0 sales tax
do the math, and the total tax paid is (p-r)*bnrt

3 company case:
p1 is the price the intermediate product sells for
p2 is the price of the intermediate product between p1 and final result
p3=p is the final sales price
the total tax paid is: (p1-r)*bnrt + (p2-p1)*bnrt + (p-p2)*bnrt + 0 sales tax
do the math, and the total tax paid is (p-r)*bnrt

same!! they’re the same!! (to the government, if the sales price remain the same as a result) Since the original costs are the same, and the the cost of final product are the same, the total money made by private sector is

p-r-(p-r)*bnrt = (p-r) * (1-bnrt) is the same for both case. So the tax doesn’t fundamentally affect the cost of doing business, more or less, the money made is the same.

tomorrow, we will check if the final price will remain the same…