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Old 04-05-2010, 11:07 AM   #41
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In the mid 80's Canada instituted an national VAT (called GST). It was fairly low (around 5% I think). In order to obscure the effect of this they also cut personal income tax rates at the same time. As I recall the max marginal rate went down by around 3%. Although VAT's are very regressive they are favored by economists because they encourage saving (if you don't spend money there is no VAT to pay). This may appeal to some of the LBYM's on this board?

Before a VAT is instituted in the USA we will read about all the benefits such as revenue from the underground economy - illegal drugs; prostitution etc.
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Old 04-05-2010, 11:12 AM   #42
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As I understand a VAT, it's only taxed when you spend it. If we don't spend it then we won't pay tax on it. If we pay FIT on a conversion at 15% then we pay the lowest FIT that we're ever likely to see, and I don't think FIT will be swept away by a groundswell of VAT sentiment. We'll take our chances with VAT.
What you describe is a sales tax. VAT taxes are levied at every step in production/distribution/final sales. Everywhere "value" is added gets taxed. VAT taxes are in proportion to the economic added value.
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Old 04-05-2010, 11:14 AM   #43
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Before a VAT is instituted in the USA we will read about all the benefits such as revenue from the underground economy - illegal drugs; prostitution etc.
Won't we have to legalize them first?
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Old 04-05-2010, 11:53 AM   #44
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What you describe is a sales tax. VAT taxes are levied at every step in production/distribution/final sales. Everywhere "value" is added gets taxed. VAT taxes are in proportion to the economic added value.
Some positive push for VAT to counter advantage to foreign manufacturing, although I am sure about benefit to economy?
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Old 04-05-2010, 12:40 PM   #45
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Won't we have to legalize them first?
No - if a illegal drug dealer buys a new car with the profits of his business he will be paying the VAT. Currently, he does not pay any federal income tax on the profits of his business. So through VAT he is paying something (but no federal income tax unless he declares his illegal drug business on his tax returns which tax law says he should).
Also, he is paying state/city sales tax without the business being legal.
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Old 04-05-2010, 12:54 PM   #46
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What you describe is a sales tax. VAT taxes are levied at every step in production/distribution/final sales. Everywhere "value" is added gets taxed. VAT taxes are in proportion to the economic added value.
I had to deal with VAT in the UK. Although VAT was levied on every step of production it could be re-claimed along the manufacturing process if you were not the end user.

If you sold me steel to make a car for $115 ($100 + $15 VAT) I would re-claim the $15 back from the government. So the steel cost me $100. I would add the appropriate VAT to the final cost of the car.

As you can see VAT creates a new industry of accountants, auditors, administrators and courts.
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Old 04-05-2010, 01:00 PM   #47
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No - if a illegal drug dealer buys a new car with the profits of his business he will be paying the VAT. Currently, he does not pay any federal income tax on the profits of his business. So through VAT he is paying something (but no federal income tax unless he declares his illegal drug business on his tax returns which tax law says he should).
Also, he is paying state/city sales tax without the business being legal.
Time for a new name -- the Bling Tax -- everyone will be happy.
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Old 04-05-2010, 01:00 PM   #48
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I had to deal with VAT in the UK. Although VAT was levied on every step of production it could be re-claimed along the manufacturing process if you were not the end user.

If you sold me steel to make a car for $115 ($100 + $15 VAT) I would re-claim the $15 back from the government. So the steel cost me $100. I would add the appropriate VAT to the final cost of the car.

As you can see VAT creates a new industry of accountants, auditors, administrators and courts.
One argument against the VAT is its stealth aspect. The end user sees higher prices instead of higher tax.
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Old 04-05-2010, 01:09 PM   #49
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Is there any advantage to VAT over an NST? Other than from the accountant's job security point of view?

VAT just seems so complicated to me, and seems to end the same. Am I missing something? Or is the VAT all about smoke-and-mirrors so the consumer feels that they are not being taxed, only greedy capitalist companies are being taxed?

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Old 04-05-2010, 01:21 PM   #50
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Is there any advantage to VAT over an NST? Other than from the accountant's job security point of view?

VAT just seems so complicated to me, and seems to end the same. Am I missing something? Or is the VAT all about smoke-and-mirrors so the consumer feels that they are not being taxed, only greedy capitalist companies are being taxed?

- ERD50
VAT too complicated ? What about Income taxes - aren't they also very complicated and very intrusive. There probably isn't any one person who understands all of the specifics of the income taxes code because it is so complicated.

Income taxes also cause each of us to confess our very personal information yearly to the government. There are many special goodies thrown out to special interest groups through the tax code. It is used to incentivize and de-incentivize behavior.

I don't see that a VAT tax would be any worse than income taxes in terms of complication. the problem would be if they implement a VAT tax on to of income taxes.

As others have posted, if income taxes were replaced with A VAT then savings would be incentivized over spending.
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Old 04-05-2010, 01:29 PM   #51
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Is there any advantage to VAT over an NST? Other than from the accountant's job security point of view?

VAT just seems so complicated to me, and seems to end the same. Am I missing something? Or is the VAT all about smoke-and-mirrors so the consumer feels that they are not being taxed, only greedy capitalist companies are being taxed?

- ERD50
After reading the link provided by landover it appears one "advantage" of a VAT over a NRST is that, as it is commonly implemented, it is a stealth tariff on foreign imports. So, it will be favored by those who oppose free trade.

While a VAT punishes imports, a NRST (if implemented as outlined in H.R 25/ S.296) would enhance our competitiveness by eliminating the corporate income tax and by eliminating the embedded costs of payroll-related taxes. But the NRST doesn't make any arbitrary distinctions between internally-produced products and externally-produced ones, so it should be more popular with those who favor free trade.

One other difference: The NRST handles the problem of regressivity by providing a "prebate" to all citizens. By doing this, it avoids the need to exclude various types of purchases/goods--it effectively removes all taxation from purchases up to the poverty level. The VAT typically handles the regressivity problem by excluding various types of goods. This turns into a very complicated issues. This article provides a glimpse at things in Britain.
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And so, in the United Kingdom, according to the regulations of Her Majesty's Inland Revenue Service, crackers made from tapioca starch carry no tax; prawn crackers made from cereals do. Frozen yogurt that needs to be thawed before eating is zero rated, frozen yogurt bears the tax. Get it? If you don't, too bad—Her Majesty's tax collectors are not in the habit of offering an explanation for their regulations.
Food for animals creates other problems. If it is "suitable for all breeds" it is taxed, but if "it is held out for sale exclusively for working dogs" it is not, unless, of course, "it is biscuit or meal," in which case it is taxed.
So dog food for "sheepdog breeds" is taxed, but dog food for "working sheep dogs of any breed" is not; food for greyhounds is taxed, food for "racing greyhounds" is not. This may be the only tax in Britain that favors work over leisure.
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Old 04-05-2010, 01:30 PM   #52
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Is there any advantage to VAT over an NST? Other than from the accountant's job security point of view?
I think the only real difference is with a sales tax you have to find out who the final consumer is. If a business buys coffee for its kitchenette it should be taxed. But if it buys coffee to resell then it shouldn't be taxed (otherwise we tax the transaction every time it changes hands, which we don't want). Under a VAT, you only pay tax on the mark-up so you don't care who the end use customer is (and businesses have no ability to avoid the tax by saying they're re-selling when they are not).
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Old 04-05-2010, 01:55 PM   #53
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VAT too complicated ? What about Income taxes - aren't they also very complicated and very intrusive.
Agreed, what I meant to convey is that VAT seems complicated compared to NST.

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Under a VAT, you only pay tax on the mark-up so you don't care who the end use customer is (and businesses have no ability to avoid the tax by saying they're re-selling when they are not).
OK thanks, I was not aware of that distinction. I thought VAT also had to determine if the buyer was a business or end user. So the name is reasonably accurate, it is a tax on the 'value added', so (theoretically), the added value would not be taxed twice, as that cost basis is passed on to the next in the chain. But as samclem points out, there seems to be no limit to the ability of our politicians to over-complicate something.

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Old 04-05-2010, 02:08 PM   #54
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After reading the link provided by landover . . .
These seem like things that could apply to either a NST or the VAT. I don't really see how they specifically apply to one versus the other. With the foreign import tax, you point to a reference where separate treaties reimburse the VAT . . . the same could be done with a NST. And couldn't we "pre-bate" a certain amount of the VAT and tax everything too?
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Old 04-05-2010, 02:12 PM   #55
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Before a VAT is instituted in the USA we will read about all the benefits such as revenue from the underground economy - illegal drugs; prostitution etc.
Nah, as we do now we'll just keep asking if there's a discount for paying cash...
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Old 04-05-2010, 02:36 PM   #56
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Nah, as we do now we'll just keep asking if there's a discount for paying cash...
Thanks for that...now cash will be on the illegal list too.
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Old 04-05-2010, 02:58 PM   #57
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I think the only real difference is with a sales tax you have to find out who the final consumer is. If a business buys coffee for its kitchenette it should be taxed. But if it buys coffee to resell then it shouldn't be taxed (otherwise we tax the transaction every time it changes hands, which we don't want). Under a VAT, you only pay tax on the mark-up so you don't care who the end use customer is (and businesses have no ability to avoid the tax by saying they're re-selling when they are not).
An example that I came across all the time was that while traveling in countries which had VAT, we had to hang onto all the original VAT receipts when we spent money on expenses, from fast food stores to hotels etc. Even though all our expenses were managed on-line through credit card electronic receipts etc, all travelers were strongly encouraged to send in their original VAT receipts to their local accounts department.

These receipts were collected and sent overseas to the corporate office in Brussels where, once a year, a load of temps were hired, and all the receipts were collated and the VAT recovered from the various countries in which it had been paid. The process sounded horrendous but was worth millions / year.
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Old 04-05-2010, 03:09 PM   #58
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The VAT rebates sound kinda like computer system rebates. Make it as difficult and complicated as possible to actually get a rebate. That way fewer people will actually get one.

That process is by no means an oversight.
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Old 04-05-2010, 05:07 PM   #59
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Living here in Germany, the VAT is a reality - although you don't see the VAT - you just see the price on the item. When you purchase the item, you see the VAT listed - the amount you paid in "TVA." It is 19% here for material goods and 7% for restaurant service, etc. It is onerous at times....with the changing exchange rates and the VAT, we're very careful about what we buy on the economy. We do buy certain groceries on the economy at ALDI or PennyMarkt - I usually do not buy clothes (they are exorbitantly expensive here - case in point, many Europeans go to the USA to go shopping, specifically for clothes and electronic goods) and never buy electronics (except for cheap cell phone). Oh, and the VAT is on top of very high income taxes......

As I've written before, you do not see the large amplitudes in lifestyles around here - Germany is clean, the people work hard and the social structure is nice. However, they pay for it dearly. Also, people seem to forget that many US states have larger economies than many of the European countries. There are issues of scaling ideas to a national economy such as the USA - sometimes it doesn't scale well. For example, it's great to be able to use the train systems around here and all of the walking/bike paths -*however* the geographical land mass is much smaller than that of the USA - we drove to the Swiss/French border last weekend in 4.5 hours - I drove to Trieste last fall in 10 hours - that was through four countries. Heck, it would take me 11-12 hours to drive from Sacramento, CA to Phoenix, AZ, in the USA and I haven't even gone through two states!

As for getting your VAT back - it's a PITA - and usually you must spend a certain amount before they will refund the VAT. Also, that amount tends to similar to that which you must claim on your entry documents for the USA. The best shops refund it on the spot.
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Old 04-05-2010, 05:19 PM   #60
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Also, people seem to forget that many US states have larger economies than many of the European countries. There are issues of scaling ideas to a national economy such as the USA - sometimes it doesn't scale well. For example, it's great to be able to use the train systems around here and all of the walking/bike paths -*however* the geographical land mass is much smaller than that of the USA - we drove to the Swiss/French border last weekend in 4.5 hours - I drove to Trieste last fall in 10 hours - that was through four countries. Heck, it would take me 11-12 hours to drive from Sacramento, CA to Phoenix, AZ, in the USA and I haven't even gone through two states!
Texas is almost twice the physical size of Germany
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