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FORTUNE: Why the U.S. can learn from New Zealand when it comes to taxes (follow the NZ VAT model)
Fortune ^ | 04/12/2010 | Dody Tsiantar

Posted on 04/13/2010 6:47:29 AM PDT by SeekAndFind

Paul Volcker fired the shot heard around the world-or at least around tax circles-last week when delivered some bad news for anyone paying taxes. It's time, he said, to consider one more: the value-added tax-the consumption tax used widely across the Atlantic.

"If at the end of the day we need to raise taxes, we should raise taxes," said the head of President Obama's Economic Recovery Advisory Board, adding that the VAT, as it's called, is "not as toxic an idea" as we once thought. In fact, the United States is the only developed country that does not have a VAT.

With the $1.5 trillion federal deficit and a soaring debt of more than $12 trillion, it is hardly surprising that pundits and politicians of various political stripes, including House Speaker Nancy Pelosi and N. Gregory Mankiw, economic advisor to President George W. Bush, are flirting with the notion of imposing a VAT tax.

"Unless the president revises his spending plans substantially, he will have no choice but to find some major source of government revenue," wrote Mankiw in the New York Times. "A VAT tax may be the best of a bunch of bad alternatives."

It may pack a less potent punch than a hike in income or corporate taxes, economists argue. The value-added tax, invented in 1954 by French tax authority Maurice Lauré, is collected by the government, in stages, as a product moves through the economy.

(Excerpt) Read more at money.cnn.com ...


TOPICS: Business/Economy; Culture/Society; Editorial; News/Current Events
KEYWORDS: newzealand; taxes; vat
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How a VAT Tax works :

For example, take a wool sweater. With a VAT, the sheep farmer and the clothing shop owner--and everyone along the chain in between--adds the tax to the price of their product. But here's the advantage: the price add-on is not cumulative to businesses and producers because everybody only ends up paying their portion of the VAT. At each stage, the buyer receives a tax invoice that is filed with the government tax collectors; the buyer then gets a refund for the tax already paid by the previous person in the chain. The government, of course, gets the entire sales tax; it just receives it in a piecemeal way. (For a good explanation of how it works, see Shawn Tully's article detailing the process.)

1 posted on 04/13/2010 6:47:29 AM PDT by SeekAndFind
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To: SeekAndFind

Tax experts and economists point to New Zealand, where a 12.5 percent goods and services tax applies uniformly to nearly everything with very limited exceptions-only rent paid for a private home, charitable contributions and interest earned are exempted. (The government offers clear details, too, on its website.)

“In New Zeland, it works in a very pure form,” says Eric Toder, an economist at the Tax Policy Center and a former consultant to the New Zealand Treasury. Toder analyzed the economic impacts of several different VAT tax models for the center, in this report. “The population likes it. People think it’s fair because it doesn’t exempt some folks and not others.”


2 posted on 04/13/2010 6:48:11 AM PDT by SeekAndFind
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To: SeekAndFind

In New Zealand, it contributes about 25 percent to the government’s bottom line, and the Tax Policy Center in December projected that a 5 percent VAT tax here would generate over $3 trillion in revenue by 2019. That’s not enough to cover America’s huge debt obligations, of course, but it’s a start.

The big questions will be whether or not politicians here can keep it as pure as New Zealand wool


3 posted on 04/13/2010 6:49:06 AM PDT by SeekAndFind
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To: SeekAndFind

We are NOT under-taxed. ANYONE suggesting this madness should be run out of town on a rail.


4 posted on 04/13/2010 6:50:35 AM PDT by Lurker (The avalanche has begun. The pebbles no longer have a vote.)
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To: SeekAndFind

No thanks. I pay more than my fair share already.


5 posted on 04/13/2010 6:51:57 AM PDT by rwh (What great fortune it is for those in power that the people do not think!)
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To: Lurker
We are NOT under-taxed. ANYONE suggesting this madness should be run out of town on a rail.

What about the VAT tax replacing the income tax (if possible) ? How would that work for you ?
6 posted on 04/13/2010 6:52:40 AM PDT by SeekAndFind
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To: SeekAndFind
The big questions will be whether or not politicians here can keep it as pure as New Zealand wool

NO! The big question is what right does the government have to extort money to fund unconstitutional boondoggles and vote buying schemes. CUT THE F***ING SPENDING. Don't raise the revenue.

7 posted on 04/13/2010 6:52:54 AM PDT by from occupied ga (Your most dangerous enemy is your own government,)
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To: SeekAndFind
In fact, the United States is the only developed country that does not have a VAT.

This is the same rationale used in the Obamacare argument. Oh, come on.....everybody's doing it. When did we decide to govern using peer pressure as the template.

Proof we have adolescent minded adults running the country.

8 posted on 04/13/2010 6:52:58 AM PDT by edpc (Those Lefties just ain't right)
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To: SeekAndFind
What model the United States might use, indeed whether the tax will be imposed at all, will be a furious political debate in the coming months. Conservatives and tax opponents hate it. "There's nothing to love. It will only lead to bigger government," says Daniel Mitchell of the libertarian Cato Institute. "The political establishment is salivating for more revenue. Thinking a VAT is going to cure the deficit is like giving an alcoholic the keys to a liquor store."

A VAT is still a tax. It takes money away from the people and gives it to the government. This means that the costs of goods and services will increase and the individual will have less discretionary income. It will result in a decline in our standard of living. Our efforts would be better spent on figuring out how to reduce government spending, including reforming the entitlement programs.

9 posted on 04/13/2010 6:53:33 AM PDT by kabar
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To: SeekAndFind

I’m leaving if they impose a VAT.


10 posted on 04/13/2010 6:53:41 AM PDT by dfwgator
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To: Lurker
suggesting this madness should be run out of town on a rail.

shot

11 posted on 04/13/2010 6:53:56 AM PDT by from occupied ga (Your most dangerous enemy is your own government,)
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To: SeekAndFind

Is that even on the table ?


12 posted on 04/13/2010 6:54:04 AM PDT by MetaThought
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To: SeekAndFind
What about the VAT tax replacing the income tax (if possible) ? How would that work for you ?

The income tax is the Left's preferred tool for social engineering - they will never give it up. Any form of VAT would be an add-on.

13 posted on 04/13/2010 6:54:53 AM PDT by Mr. Jeeves ( "The right to offend is far more important than any right not to be offended." - Rowan Atkinson)
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To: SeekAndFind

No thanks.


14 posted on 04/13/2010 6:55:19 AM PDT by Hemingway's Ghost (Spirit of '75)
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To: SeekAndFind
"If at the end of the day we need to raise taxes ...

Stop right there. We never "need" to raise taxes. There is always the choice of reducing spending below revenue levels.

Those who pretend there is no choice are totally without credibility and possibly should be sterilized to eliminate them from the gene pool.

15 posted on 04/13/2010 6:55:40 AM PDT by Tax-chick (There's a perfectly good island somewhere.)
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To: Mr. Jeeves

I realize that. But WHAT IF we had the chance to do away with the 16th Amendment and replaced it with a pure VAT ? Would it be better ?


16 posted on 04/13/2010 6:55:54 AM PDT by SeekAndFind
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To: SeekAndFind

Tax experts and economists point to New Zealand, where a 12.5 percent goods and services tax applies uniformly to nearly everything with very limited exceptions-only rent paid for a private home, charitable contributions and interest earned are exempted. (The government offers clear details, too, on its website.)

Not to put a dent in Volkers genius, but met several Kiwi’s stationed in Singapore. They loved the station because they could afford to buy things like stoves, toasters, and other kitchen appliances in Singapore that were 3x more expensive in NZ. Their plan was to buy all their appliance needs in Singapore while stationed there in order to furnish their NZ kitchen. If this is progress then I am headed for Chile.


17 posted on 04/13/2010 6:56:03 AM PDT by equalitybeforethelaw
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To: SeekAndFind
What about the VAT tax replacing the income tax (if possible) ?

It won't and it's not.

18 posted on 04/13/2010 6:56:57 AM PDT by Lurker (The avalanche has begun. The pebbles no longer have a vote.)
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To: SeekAndFind
Stupid redundant overly paperwork heavy system.
19 posted on 04/13/2010 6:58:45 AM PDT by mad_as_he$$
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To: SeekAndFind
NZ has a population of 4.2 million compared to our 309 million. We have added 28 million to our population since 2000 or almost seven times NZ's population.

NZ's GDP is $110.9 billion (2009 est.) compared to our $14.43 trillion (2009 est.) Only a fool would believe that our huge complex economy could use a small country such as NZ to emulate its tax system. NZ is a socialist country.

20 posted on 04/13/2010 7:02:13 AM PDT by kabar
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