A Not-So-Simple Alternative to the Income Tax for Socialist Economies in Transition

Abstract

McClure's simple alternative tax (SAT) more or less takes the view that if inflation is inevitable, you might as well take the easy way out. All capital purchases are expensed. There are no problems of depreciation, stock valuation, or inflation accounting. This is the most attractive aspect of the business SAT. Under the SAT, many firms will make capital purchases that outstrip their sales. If the government were to be a complete partner in risk taking, it should compensate the firm for the tax element in the loss. The more firms expand and invest, the lower will be SAT revenues. This is hardly the time to propose innovative taxes that will yield even less revenue-or taxes that, to yield revenue equivalent to the conventional profits tax, would require a much higher corporate tax rate; such a measure would create its own problems of avoidance and evasion. It is acknowledged that the corporate SAT levied when firms are restructuring and investing in new buildings, plant and equipment is not going to yield revenue. In the long run, only households pay taxes. No matter how corporate and sales taxes are levied, they end up being paid by households. What is needed is a variety of tax handles to capture revenues equitably. The SAT is certainly an alternative that deserves consideration, but the author questions whether its case has been proved beyond reasonable doubt; an expanded VAT (value-added tax) deserves a better and more favorable consideration.