US Republicans debate VAT

Fri 15th Jan 2016

US Republican presidential candidates, Mario Rubio and Ted Cruz, debated potential US VAT implementation proposals in a heated exchanges yesterday.

Rubio accused Cruz of proposing a European-style VAT regime for the US, a system facing severe criticism in some quarters as supporting heavy government expenditures. Cruz’s proposal is for a flat-tax on businesses, charging 16% on the money they receive on sales, minus the same amount on their purchases. He stated that this tax could replace payroll and profits taxes, which holdback employment and investment, respectively. The tax could also help reduce personal income tax to 10%.

US high corporate income tax

The US has the highest corporate income tax rate in the OECD. This is partially due to a low-rate sales tax regime on consumption meaning the burden of taxes fall heavily on companies.  US Sales Tax rates average around 6%, compared to the European Union’s average VAT rate of over 21%.  US multi-nationals have been accused in the press of holding large profits offshore to avoid the US corporate tax rate.