Europe's VAT Lessons-- Rates start low and increase (Perils of a 9-9-9 tax)

WSJ ^ | April 15 2010

[dennisw]

One trait of European VATs is that while their rates often start low, they rarely stay that way. Of the 10 major OECD nations with VATs or national sales taxes, only Canada has lowered its rate. Denmark has gone to 25% from 9%, Germany to 19% from 10%, and Italy to 20% from 12%. The nonpartisan Tax Foundation recently calculated that to balance the U.S. federal budget with a VAT would require a rate of at least 18%.

VATs were sold in Europe as a way to tax consumption, which in principle does less economic harm than taxing income, savings or investment. This sounds good, but in practice the VAT has rarely replaced the income tax, or even resulted in a lower income-tax rate. The top individual income tax rate remains very high in Europe despite the VAT, with an average on the continent of about 46%.

As Americans rush to complete their annual tax returns today, there is still some consolation in knowing that it could be worse: Like Europeans, we could pay both income taxes and a value-added tax, or VAT. And maybe we soon will. Paul Volcker, Nancy Pelosi, John Podesta and other allies of the Obama Administration have already floated the idea of an American VAT, so we thought you might like to know how it has worked in Europe.

A VAT is essentially a national sales tax that is assessed at each stage of production, with the bill passed along to consumers at the cash register. In Europe the average rate is a little under 20%. In the U.S., a federal VAT would presumably be levied on top of state and local sales taxes that range as high as 10%. Some nations also exempt food, medicine and certain other goods from the tax.

[Utmost Certainty]

The sales tax component of 999 isn’t a VAT. The end.

[dennisw]

Above chart shows VAT TAXES ALWAYS BEING JACKED UP same as your state and county sales taxes have been---

VAT is not exactly a national sales tax but close enough for me. And definitely close enough for Federale Gov't drones who feed on your taxes at the public trough. In Europe they always went up to fund ever growing socialist schemes. Our Democrats have in mind reparations, income redistribution and European style socialist schemes like national health care

[Spktyr]

One simple solution to these problems would be to require a 60% majority of the voting populace to agree to any tax hikes, and that any approved tax hikes would automatically expire after 4 years and have to be voted on and approved by 60% (again) to be reinstated.

[dennisw]

Alas and alack the little people so often mistake a VAT tax for a sales tax. Ever wonder why? Because they are very similar. Close enough for me. A VAT sure isn’t an income tax. It is a tax on stuff I buy and amazingly enough so is a sales tax.

[sneakers]

Cain’s plan is not a VAT.

[athelass]

He intends to pass the Balanced Budget Amendment.
He says this is the first step on the path to the Fair Tax, which would eliminate income tax altogether.
And he says there is no tax in existence which they cannot raise. We must be diligent to elect people who will not raise it.
His is the only plan which extends the tax base to include the 50% who pay no federal income tax now, not to mention those working under the radar who receive benefits but pay nothing (illegals).
This also eliminates the payroll tax which is 6%.
It's a really good plan, far better than Newt's or Romney's. They want to tweak the old system. He wants to "abolish and replace."
Go to cspan2.org and watch his speech to the Values Voters Summit. It's brilliant.

[Utmost Certainty]

A sales tax and a VAT are quite different from one another, and you’re spreading misinformation by insisting they’re effectively the same.

As you can read from the very article you posted: “A VAT is essentially a national sales tax that is assessed at each stage of production”

Whereas a normal sales tax is a tax that’s only assessed once, at the point of retail sale.

[Jonty30]

The solution is to keep the tax in the open, like Canada did.

We’ve had our GST since 1992 and it hasn’t gone up.
No government dares to raise it.

[dennisw]

My 9-9-29 plan

1. 9% business flat tax
2. 9% flat personal income tax
3. 29% tariffs on all imports    
   Yep tax the foreigners for the right to sell their stuff in the great American marketplace. Prices will rise a bit but this will bring home lots of jobs and factories. This will encourage domestic oil production after the next Republican president nukes the EPA because we import 60% of our oil

[101voodoo]

WTH?? Can someone PLEASE tell me WHY a national sales tax, VAT or any tax at all cannot ALSO be raises at any time?

Why is this suddenly an issue? Are people just stupid or gullible and believe whatever an opponent of change tells them?

Geez, no wonder this country is so f’d up.

[dennisw]

Europeans pay the VAT tax at the cash register same as I currently pay my state sales taxes. Not much difference. Regardless of how the tax is assessed, the end buyer pays both, VAT or sales tax, at the cash register

[EQAndyBuzz]

Don’t trust that. More room for the rats to cheat

[Utmost Certainty]

Yawn. Inane protectionist policies.

You might want a crash course in this: http://en.wikipedia.org/wiki/Comparative_advantage

[Utmost Certainty]

Yeah, but with a VAT the producer gets hit with a tax at -every- production stage of a good. Further, the VAT is embedded in the sale price—rather than being up front on receipt like a sales tax (which is only paid once, at point of sale).

[ROCKLOBSTER]

Any propagandist demonizing the proposed national one-time retail sales tax, by referring to it as a VAT, is simply a lying pile of crap, including the WSJ.

[edpc]

Europeans pay the VAT tax at the cash register same as I currently pay my state sales taxes. Not much difference. Regardless of how the tax is assessed, the end buyer pays both, VAT or sales tax, at the cash register.

They're not the same thing at all. Using your comparison above, you may as well say a sunrise and sunset are the same, since the sun is at the same point on the horizon.

[ROCKLOBSTER]

GET IT RIGHT!

1. 9% business flat tax
2. 9% flat personal income retail sales tax
3. 29% tariffs on all imports

[calex59]

Alas and alack the little people so often mistake a VAT tax for a sales tax. Ever wonder why? Because they are very similar. Close enough for me. A VAT sure isn’t an income tax. It is a tax on stuff I buy and amazingly enough so is a sales tax.

The major difference between the two, and it is a big one, is that a vat is initiated at the manufacturer and at each level of sales the tax is increased, so by the time it gets to retail it has blown up quite a bit. A sales tax, which beats the he** out of a vat or income tax, is only applied at the retail level. The 999 plan would eliminate(ok, that is the hard part)the income tax, the corporate tax, and the sales tax we have now. Don't think we have a fed sales tax now? Guess again. We do have one on lots of items. Once the 9-9-9 plan has been in effect for a while the fair tax would take over.

The way to beat increases in taxes is to make sure your amendment(and it would have to be an amendment in order to dump the income tax)requires a 75%(not 60%, that is too low)vote in order to raise taxes, and both houses would have to vote on it.

When you say a VAT and a sales tax are one and the same(or close enough)you simply don't know what you are talking about. Plus, a national sales tax, with the correct safe guards, is far superior to an income tax. Everyone has to pay it, as long as they buy something they will be paying taxes. No more deductions for the rich or anyone, no free ride for the 47% who don't pay taxes now.

A flat tax, as some people are pushing for, is what we had to begin with and would eventually lead right back to a progressive income tax and all the evils inherent in that system.

[30Moves]

I think Cain said that to raise the tax it would have to be a 2/3 vote - difficult - and it would be out in the open so the people would know about the proposed hike before they passed it “so you can see what’s in it.”

I like the plan because it severely restricts lobbyists and gets rid of the social engineering built into the tax code and mostly because ENDS the cronyism “carve outs” for their political donors and friends.

I can’t afford an alpaca to be able to get the tax break for raising alpacas!