SensibleTaxReform Blog

10. Will Government Agencies and Businesses Be Taxed?

The federal consumption tax (FCT) that will be introduced by Sensible Tax Reform will only apply to retail purchases for consumption. It will not be applied to non-retail and non-consumption expenditures. It will not apply to the purchases of either businesses or government agencies.

Businesses

This tax plan will be incredibly beneficial to businesses in the United States. They will no longer be subject to most of the existing federal taxes, including income and Social Security taxes, and the corresponding compliance costs. That will save American businesses almost $1 trillion every year.

And of course, purchases by businesses (whether corporations, partnerships or proprietorships) will not be subject to the proposed federal consumption tax either, since it will apply only to retail purchases.

Most businesses therefore will have no federal tax obligations at all. Retailers will need to collect and process the FCT from retail customers—but not from other businesses or government agencies.

With tax and compliance-cost savings of almost $1 trillion annually, American businesses will have an unprecedented opportunity! They will have ample resources to invest in research and investment in new capital equipment. They will also be able to pay off debt and increase dividend layouts to their shareholders. And, they will become much more competitive against foreign competitors–both in foreign markets and here at home in import-competing markets.

Governments

Agencies of federal, state or local governments in the US do not generally tax other government agencies—even now. That will be even more true under Sensible Tax Reform—Simple, Just and Effective. Existing taxes will no longer be paid and the FCT will not be imposed on state and local governments or their agencies.

Some government agencies provide commercial services or goods to the private sector, such as water purification, garbage collection and electrical energy. Although those agencies themselves would not pay the FCT on what they buy, their sales to retail customers would generally be subject to the same tax rules as would a corresponding sale by a private-sector business. Those government agencies would collect the FCT and remit it to the federal government.

 

In summary, under Sensible Tax Reform—Simple, Just and Effective, only expenditures by individuals and families will be subject to the federal consumption tax. Expenses of all business firms and governments and their agencies will be exempt.