Posted on 04/09/2010 5:59:47 AM PDT by Big Bureaucracy
You don’t have to go all the way to Europe to find what VAT is. Our neighbors in Mexico have it. Most of the Latin America is collecting VAT – Argentina, Brazil, Venezuela… Ask your Latino friends: “How is Impuesto al Valor Agregado working for ya?” Do you miss it here? Do you want it imported in the USA?
It is true some states here have sales tax... There is a difference though...
Here is how it works (let’s assume the tax is 10%):
Sales tax – The manufacturer of the product buys the supplies tax free by showing business ID that certifies that the business is not the end consumer.
The retailer is buying the finished product tax free by showing business ID that certifies that the retailer is not the end consumer.
The consumer buys the good and pays 10% sales tax. The retailer sends the collected tax to the IRS.
VAT tax – the manufacturer buys the supplies and pays 10% VAT tax to every supplier. The manufacturer saves the receipts for taxes paid. Every supplier sends the collected tax to the IRS. The retailer buys the finished product and pays 10% VAT. The manufacturer keeps the money for the taxes that are already paid to the suppliers (according to the recipes) and sends the difference (the 10% of the gross income) to the IRS. The retailer saves the receipts for taxes paid.
The end consumer is buying the product and pays 10%. The retailer keeps the money that was already paid for taxes (according to the recipes) and sends the rest (10% of the gross income) to the IRS.
... as you can see the value added tax is the closest thing there is to a bureaucratic heaven.
(Excerpt) Read more at bigbureaucracy.com ...
Absolutely!
How do you define the VALUE put into a process?
What if it was an intellectual process?
How do you measure the value of innovation before the market sets it?
All these questions will be answered by gov’t bureaucrats that answer to political influences and, of course, lobbyists.
This will create the largest expansion of lobbying in the history of the world.
I agree with you. In the cases where the VAT is different for different products (let’s say 20% for TV, 2 % for food, 5% for books) - the corruption erupts. Lobbying begins how to put the TV in the book tax :) It is a high fraud, high bureaucracy, high corruption generating tax.
Trying to understand. The consumer doesn’t see an increase in how much we pay. The manufacturer and retailer does though? That would obviously translate into an increase for the “end consumer” but we don’t see it?
That is correct and will help perpetuate the myth that all businesses are greedy and evil.
Actually the consumer pays the whole tax. The manufacturer and the retailer recover 100% of the taxes they pay through the chain. The manufacturer recovers his taxes from the retailer and the retailer recovers his VAT taxes from the end consumer.
What increases the price is the accounting and bureaucracy.
It is like when your employer sends a portion of your income taxes to the IRS with every check you get. The employer sends to the IRS your money in advance instead of you paying your taxes at the end of the year.
with the sales tax the business sends the payment to the IRS after the end consumer pays the tax. With VAT the business sends the tax in advance and recovers it when the end consumer pays it at the end of the chain.
The end consumer pays the 100% of the VAT tax. Business pays 0% at the end. Business just pays for accountants to deal with the paperwork - so they recover all the taxes they paid through the chain.
What’s worse is that states get to collect sales tax on the VAT, and will be encouraged to RAISE their end sales taxes to something similar to Cook County’s sales taxes.
A vat tax increases the price of anything that the feds determine that has had value added to it. Poorly constructed sentence, but whatever. Everything will cost more because at every step along the way, the product will be taxed. At the end of the line, where the consumer pays for the product, all the cumulative taxes are added on the final price for the product. AND it will be corrupted. And it will not displace any existing taxes. It is a “hidden” tax because there is no line item labeled VAT tax like your sales taxes. It is just built into the price of the item. Back in the day, when the dims imposed a luxury tax, the wealthy just didn’t purchase the luxury items. Put a lot of people out of work who built boats, and other high end product. A tax of any kind or increase of existing taxes only leads to a decrease in the activity that is taxed.
Essentially each level of production would charge a tax on the full amount but gets to take a deduction for taxes they've already paid. So if the VAT is at a 10% inclusives rate, when a baker buys flour and other ingredients for $100 then $10 of that will be tax and listed on the receipts he gets. If he sells bread for $150, $15 of that will be VAT. He will calculate a $15 VAT and subtracts the $10 he has VAT receipts for and send in the $5 difference. The consumer defininitly sees an increase in price because that $150 of bread had been $135 before the VAT (ignoring price elasticity and less demand for bread with fewer people being able to afford it).
If done properly, the final effect on price will be the same as a sales tax of the same amount, although with more bookkeeping. In this case a 10% inclusive rate would be the same as a 11.11% exclusive rate.
I don't know how the VAT affects capital puchases like the oven in my baker example.
I don't know how it is in every country, but when I spent some time in Germany every receipt had the tax listed as a separate line on it. I didn't notice any difference in rates between items, but I wasn't paying that much attention.
Below is from George Washington’s Farewell Address!
On stable public credit.
“...cherish public credit.
One method of preserving it is to use it as sparingly as possible...
avoiding likewise the accumulation of debt....
it is essential that you...bear in mind, that towards the payments of debts there must be Revenue,
that to have Revenue there must be taxes;
that no taxes can be devised, which are not...inconvenient and unpleasant...”
The VAT is not included in the price. When the end consumer gets to the register the State sales tax and the national VAT tax will show up as 2 separate sales taxes. VAT is not hidden inside the price of the product. The consumer pays it the same way at the register as we pay sales tax today.
What is hidden inside the price of the product are all costs for accounting and paperwork the all the businesses had to endure in the chain.
For everyone else, here is a site with the George Washington's full farewell address (yes, I saw it was Yale) http://avalon.law.yale.edu/18th_century/washing.asp
In all the countries that have VAT the tax is paid at the register like we pay the sales tax in some states here. It is a separate line on the receipt like the sales taxes.
It has hidden cost for the businesses. And it is true the price of everything in the country rises automatically. If Obama declares 5% VAT tax - everything you buy will cost 6-7% more - 5% that the consumer pays at the end and the rest are costs for the businesses for dealing with IRS through the chain.
You got it correct.
Everywhere I’ve been where they have VAT tax - it is a separate tax on the receipt.
Did you get your VAT refunded when leaving the EU?
I stand corrected. I was thinking in the mindset of the manufacturing process.
Actually the most recent liberal proposal that is coming from the Academia proposes VAT + eliminating the income tax for folks with income less than 70K.
Some decent folks will get relief, but most of the folks in the bottom of that category do not owe federal income taxes anyway.
Most of my spending was for my company, so I just gave them a stack of receipts and let the accountants do their stuff. However, I don't know how much they could claim since most of my expenses were for hotels and food consumed in Germany rather than merchandise brought back.
You didn’t grab a BMW on your way back? Just kidding. Bet you had a great trip.
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