A Value-Added Tax In America? What?
The Washington Post writes that a national sales tax, known in other countries as a value-added tax or VAT, is getting some attention in DC, even among Democrats, who traditionally don't favor regressive taxing schemes. The article notes some pros and cons about a VAT, as well as the small problem that imposing a 25% sales tax on everything would be political suicide.
Post a comment
Comments:
Makes people consider those "essential" purchases. We have friends in Norway that pay probably 50% of their income in taxes. They also get free college education and medical care and most families only have one car because it would cost about $90,000 for a car that costs $20,000 over here.
Dead Link
VAT or GST as it's known in Canada doesn't have to be as high as 25%.... Up here we have a 6% tax.
VAT is no friend of Ireland, I can tell you that. Sales tax is annoying when you go to the counter and realize you forgot to add 7% to whatever you were buying, but with VAT they get to slip any number of taxes under the tag. This is especially true for cigarettes and alcohol. Most all consumer items besides food and clothing are taxed at 21% with additional hidden levies on other items. In the case of cigarettes the applicable taxes exceed 200%
@Morberis:
yep, that 25% number is a little scaremongerish.
Goods and Services Tax (GST) is also used in New Zealand and is 12.5%.
@Overheal: The U.S. does the hidden taxes already, especially, as you say, for cigarettes and alcohol (and gasoline).
The article link should be .html, not .htm--here's the actual link: [www.washingtonpost.com]
Why did you pick 25% as the number to scare readers with? Does it make your point better?
As the article states, 25% would be the highest in the world. (Summary link is dead; here's the story: [www.washingtonpost.com] )
Why not a more reasonable number, like 5%?
It would still place an undue burden on the poor.
@frari489: Yeah, but in NZ that's all there is. No state sales tax. No county tax. No local city sales tax.
When I lived in NZ I actually quite appreciated the flat tax across the country. That's basically the only reason that the shelf prices in stores in America don't have the final price, it's because the final price could potentially fluctuate with in a ten minute walk of where you are.
I love how it is called a "Value Added" tax. Who would be against a tax that adds value to a product?
Next up, the Fluffy Kitten Tax (FKT), because really, who doesn't love kittens?
@kateblack: I don't know if I ever buy the "burden on the poor" arguments...a tax on all would be burdening the poor. But I'm going to get burdened too, and just because I'm not at the poverty line doesn't mean I don't struggle. I don't like that anyone who isn't at poverty line can't possibly struggle to make ends meet, and should therefore be taxed. Oh but the poor people! Guess what? I bring home a paycheck and most of it goes right out the door so I can have a place to live, so I can feed myself, and so I can pay for transportation and health care. I struggle too. Not as much as poor people, obviously. But I'm not wealthy either, and I resent paying more taxes.
@jyindc: Emanuel actually argued for a 10% tax, which I agree would be a better number than the 25% tax in the blurb above.
However, the article does mention that a 25% tax would be needed in order to pay for everything we want - so the 25% wasn't pulled out of thin air by Consumerist.
I think that if Congress put half the energy into looking for ways to cut spending than they do looking for new and ingenious ways to increase taxes, we'd all be better off.
I would be ok with this, but only if the other sales taxes were removed, and only if it didn't apply to things like food, drugs, and other health necessities. But a flat extra 5% on top of all the other sales taxes (gas, luxury, cigarettes, etc), and in addition to my income taxes (federal, medicare, medicaid, and state) and your talking about me running around paying 60% of my income in taxes!
REALLY!? And what am I getting? No free health care, no social services (I make too much), no assisted living? Bah, that's some BS right there.
I'm all for changing the tax structure, but really (really!) the gov't needs to spend less, not look for ways to make more. All the people living here, all these corporations, all these import and export taxes and other crap, and they don't have enough money!? Obviously there's something wrong with the way they're spending.
Make a budget based on your income like the rest of us, US Gov't!!
I'm game for a flat federal sales tax if we cut out other taxes. Seems simple enough; the more you buy, the more you pay. It'd make tax day a lot easier too.
The only way that I could see this working is if it was eased in over a period of say 30 years. Otherwise it would put too much of a brake on spending and do to much damage.
The other thing is that I hope it would be a true VAT and not a 25% sales tax. A VAT is an effective way for preventing companies of finding tax loopholes and effectively paying very little taxes. In a VAT (value added tax) the tax is applies each step of the way on the value added. So for example a company buys raw materials at a total cost of $X and then they sell to a store at $Y, then they pay $0.25 * (Y - X). When you buy that item in the store for $Z the VAT the store pays is $0.25 * (Z - Y). Of course every company builds the VAT into their prices, so in the end the customer pays the entire 25%, but at least companies are paying taxes that are very hard to find a loophole for.
Lets get this straight, they are going to tax us when we make money, tax us on our property (cars/homes/ect) then tax us when we spend money 2x (state & fed)?
I can see having a VAT instead of tax's taken out of your paycheck (it makes more sense honestly). But if it's in addition to...well I've got a few words for those politicians "Your Fired!"
I am stationed overseas in Italy, nothing like paying at least 20% tax on everything you buy here. A new XBox release costs at least 70 EURO. You got extra money to burn? We're gonna tax the shit out of you! The best part is, when I do buy something on the Italian economy, the percentage of tax is NOT on the receipt. How much am I paying!?! The USA doesnt want this shit.
I think Americans are taxed high enough considering we have to pay for our own healthcare. I know people that are paying around $500-$600 a month through employer provided plans (family), with a 2k yearly deductable. If you make 30k a year, thats like a 20% "tax" rate right there...then add in property tax, sales tax, state tax and federal income taxes...I'd say a lot of Americans are already paying 40-50% in "taxes".
@winshape:
The name actually comes because the tax is designed to tax the value any single business adds to a product. It's actually one of the best taxes out there as far as minimizing economic distortions.
As far as shifting the tax burden to consumers, all taxes shift tax burdens to consumers. In many countries VATs still need to be printed on receipts so consumers can see what they're paying.
VATs are better than most other taxes. Take a look into it and see.
If they threw out the wealth-redistribution income tax code and switched to a consumption-based VAT, it would reward those who saved money. If they just add this to all the other taxes, forget it. The other problem is the people who get tax credits under the current income tax system would be up in arms. (Think mortgage interest deduction, charitable giving deduction, credit for dependent children, etc.)
The simplicity of a VAT or flat tax would make each person richer, not having to consult professionals or buy software each year to understand the tax code, which I think may already be non-deterministic. Imagine never having to do your taxes?
Political suicide. Will never happen.
Why don't people understand income tax? Why do people think that their tax refund is "free money"?
If you have a VAT, you dont have an INCOME TAX. Jeez. I didn't see them say that in the article, but isn't that how it's supposed to work? That way I'm only taxed on the money I spend and not on what I earn?
@jerros: Don't forget your local city/county taxes.
And if you get a state tax refund, you pay taxes on that.
If Oprah gives you a brand new car, more taxes.
Along with other unintended consequences this would add yet another huge layer of bureaucracy. It would also force many people into black markets where there is no court remedy against fraud or product liability. People would also attempt to escape through the barter economy. Taxation is theft!
@kateblack: Not necessarily, if it were combined with some sort of negative income tax or rebate scheme. (In other words, everyone would pay the VAT, and then everyone (or just poorer people) would get a check from the government to give some of it back. The people who pay less total VAT because their income is lower might get more back than they're paying, while richer people would get a lot less).
If they would follow the Fair Tax fairtax.org instead of a stupid VAT people might actually like it. NO INCOME TAX, NO IRS, NO REDUCTION IN GOVERNMENT INCOME, ILLEGALS WILL PAY TAXES, CRIMINALS WILL PAY TAXES. On top of that every family would receive a debit card as credit on staples (basic necessities if you will). Check out the site. It's worth it.
A television station should hold Presidential-style debates between the groups pushing various tax proposals. Offering these groups three or four 2 hour blocks would go a long way to educating the public on the pros and cons of the best options out there.
(FairTax, VAT, and income tax proponents could be invited to debate their respective merits, for example.)
@jyindc: I am going to assume you have never had any heavy dealings in a negotiation. When you are looking to get to a certain number, lets say 10%, you submit an offer for 25% and then allow the other side to bring you down to your original goal. This way you get what you want and the other side "thinks" they have saved themselves 15%.
@jyindc:
25%-27% is often cited by "Fair Tax" advocates as a revenue-neutral figure were it to utterly replace the progressive income tax system. I'm not certain that a VAT would necessarily be this high. Given our economic sensitivity to consumption I doubt we could reasonably expect the same income given the overall depression on consumer spending that sales taxes introduce.
@johnva:
Yeah, that's how it works in Canada. I'm a student and so technically I'm pretty poor, thus once a quarter I get a check for 90 bucks from the guv'mint. Folks with kids and such get more.
@ospreyguy: FairTax FTW!
Seriously, though, given that our obtrusive corporate and income tax structure in the US is already causing prices to be inflated because of taxes, the FairTax as a replacement for the Income tax makes sense. However, adding on a VAT (which taxes at all levels, not just the end retail point) in addition to the income tax would be a bad idea.
@bornonbord: It wouldn't be if that was our only national tax. There is no telling how much we really pay out after income tax, social security, medicare, and the corporate taxes that get passed down to us every time we buy something.
Of course it is unconstitutional, but that really doesn't stop these bastards now does it?
@jyindc: The article talks about a 25% proposal, as well as the political difficulties in enacting it:
Burman, who helped House Democrats craft an unsuccessful 2007 plan to repeal the alternative minimum tax, said he's received a number of phone calls from lawmakers interested in his idea, though "they can't quite imagine how to make it happen politically." Burman said the 25 percent rate has caused some sticker shock, and he's trying to figure out how to bring it down.
@winshape:
Also, don't forget capital gains taxes and inheritance taxes. I think we need some more taxes.
@ospreyguy: My hope is that this is the FairTax in disguise...they just can't call it the FairTax since the "evil neocons" came up with the idea.
Are sites such as Ebay and Craigslist popular in countries with a high VAT? Seems like people would much rather buy and sell their own used products, if getting a store involved means paying 20% more (on top of the increased prices the store needs to earn a profit).
@Diet-Orange-Soda: A flat tax has a lot of benefits - among them, it taxes the black market income from drug dealers, prostitutes, and those shameful servers who don't report their tips ;)
The rich still pay a lot more dollars in tax because they buy more expensive stuff. It eliminates 90% of the IRS, who would now just need to police a few million businesses who collect the taxes, rather than policing 100 million (or more) taxpaying American households.
It also has big disadvantages: It would have the effect of a giant tax increase on the poor, so I would be for a phase-out of the tax via a card or something for those in lower income brackets.
Also, something really creative would have to be done to save charities - non profits rely on private donations, much of which wouldn't be given if not for the tax incentives that disappear in a flat tax system.
@mzs: There's no such thing as a "tax loophole" - that's political doublespeak. Following the tenets of the law to minimize your tax liability is actually perfectly legal, and in no way immoral. As a matter of fact, it would be immoral NOT to minimize your tax liability - if you don't, you're paying more than you owe.
@jerros: @jerros: To be fair, taxes on properties "theoretically" are used to pay for local services, such as police,fire department and public schools. You could , of course pay for that stuff out of pocket. That would negate the need for a property tax. But most people dont know what civics is, so if a scheme like that was set up, expect the very rich to thumb their noses and pay nothing at all to support local services.
Fair Tax advocates and national sales tax advocates tend to miss two important points:
1.) The top 50% of wage earners pay 96.93% of American taxes. A sales tax or fair tax redistributes an immense tax burden to lower-income citizens.
2.) The economic impact of consumption-based taxes is rarely analyzed in "revenue-neutral" schemes. ~70% of our economic activity is consumer-driven, meaning all that spending creates jobs. Sales taxes have a deleterious effect on spending - rates would need to be higher than estimated. That effect, of course, must be balanced against the "wealth effects" of the end of income taxes.
@Murph1908: The US is already socialized in loads of ways. I hope you are just stating a fact and not being a douche.
Not only would it be political suicide but it would be population suicide, as I'm sure I wouldn't be the only one abandoning ship if that were to pass through legislation.