Does Everyone Understand the Difference Between a VAT and a Retail Sales Tax?

Nerds 4 Cain ^ | 10-14-11 | OnTheOppositeShore

[Brookhaven]

It seems that the 999 plan is receiving a lot of unfair criticism, because many people don't understand the difference between a value added tax (VAT) and a retail sales tax. I'm going to try and describe the difference here, using the milk supply chain as an example.

A retail sales tax (this is what is in the 999 plan)

1. A dairy farmer sells their milk to a processor. No taxes are levied or added to the price of the milk.
2. The processor sells the milk to a wholesaler. No taxes are levied or added to the price of the milk.
3. The wholesaler sells the milk to a grocery. No taxes are levied or added to the price of the milk.
4. The grocery puts the milk on the store shelves. No taxes are levied or added to the price of the milk.
5. A parent buys the milk to put on their cereal at home. At the cash register, a sales tax is levied on the price of the milk. The sales tax shows up as a separate line on the cash register receipt.

The one and only place where a tax is levied on the milk is after it has reached the cash register for it's final purchase before being consumed—a retail purchase.

From a conservative standpoint, the great advantage of a retail sales tax is that it is 100% visible. The tax payer can easily determine how much they are paying in taxes.

A VAT (value added tax)

1. A dairy farmer sells their milk to a processor. A tax is levied on the milk, and it is embedded in the price the farmer charges the processor.
2. The processor sells the milk to a wholesaler. Again, a tax is levied on the milk, and it is embedded in the price the processor charges the wholesaler.
3. The wholesaler sells the milk to a grocery. For a third time, a tax is levied on the milk, and it is embedded in the price the wholesaler charges the grocery.
4. The grocery puts the milk on the store shelves. For the fourth time, a tax is levied on the milk, and it is embedded in the price of the milk displayed on the shelf.
5. A parent buys the milk to put on their cereal at home. At the cash register, no taxes are levied on the milk. The four taxes that have already been levied on the milk do not show up as a separate line on the cash register receipt.

With a VAT, every time a product or raw material changes hands it is taxed, and the tax is embedded in the price of the item. If it changes hands five times before it reaches the consumer, it is taxed five times. If it changes hands 100 times before it reaches the consumer, it is taxed 100 times.

Conservatives are right to abhor a VAT.

A VAT is a hidden tax. The consumer never knows for sure how much in taxes they are paying, because the tax is embedded in the price of the product. That, of course, is why governments love the VAT. Voters are less likely to complain about a tax when it is difficult for them to determine exactly how much they are paying in taxes.

A VAT creates a paperwork nightmare for businesses as they have to keep track of the taxes that have been paid on items and raw materials all along the production process.

It's not surprising that Europe (which has a bias towards high taxes) prefers a VAT, because it is a hidden tax and thus easy to raise. While the USA (which has a bias towards low taxes) prefers to implement retail sales taxes, because it is a highly visible tax and thus difficult to raise.

I hope this makes the difference between a VAT and a retail sales tax clear. They are very different animals.

The Herman Cain 9-9-9 plan implements a retail sales tax. In no way, shape, or form does it implement a VAT.

[Tublecane]

“You’re right. They’re completely different. In no way, shape, or form does one look like the other”

I know you think you’re being cute, but in case you didn’t know, you’re lying. Because if VATs insert themselves into retail transactions, it’s only in the same way that countless other taxes do so. Truly, the cost of a VAT would be reflected in a products final price, but so are corporate taxes, payroll taxes, excise or “sin” taxes tariffs, inflation (thanks to the Fed), income tax, and so on. VATs are yet another cost of business on the production side, and aren’t unique in showing up on your Walmart receipt.

Only sales taxes are specifically designed to tax retail transactions. Nice try, but VATs aren’t.

[txroadkill]

You are not living in the real world, how many employees depend on you to feed their families? We struggle but thanks to my Governor we are bouncing back. So don’t make far reaching statements about people you don’t know. It is hard out here trying to make ends meet, I’m glad that you obviously don’t have that problem. The last thing I want to do is take money away from my employees and give it to our Government because it makes my taxes go down. You want to help me and my employees, stop taking so damn much from me, don’t take it from them and just leave us the hell alone. Then we will go out and make more money from everyone else who has more to spend and I’ll turn my employees, and so will all the other small business owners, into tax payers because of they will make to much not to be.

[Tublecane]

“But they WON’T stop the income tax.”

No. The thing about taxes, though, is that it’s not important how they’re collected, but rather how much is collected. Anything that helps ease the burden is fine by me. You may see it as the more kinds of taxes, the more taxes raised, but that’s not necessarily so. Adding a new tax on top of the income tax, the corporate tax, the capital gains tax, excise taxes, inflation, etc. may very well decrease the burden of all thos taxes, so long as it ais a politically useful tax. And a national sales tax could be politically useful, in that it’s regressive and would hit a majority of the electorate, so that it wouldn’t be any longer possible to pretend it’s just Fat Cats revolting against Washington.

[Tublecane]

“You want to help me, a tax payer, STOP SPENDING MY MONEY”

I realize it won’t help to tell you this, but the reason the government spends so much of your money is because those people you speak of with no skin in the game, or those type of people, rather, vote your money into their pockets. Nothing has worked so far to convince them to stop. I don’t see many alternatives.

By the way, people without skin in the game actually already have skin in the game, they just don’t know it because they don’t understand inflation.

[Tublecane]

“The last thing I want to do is take money away from my employees and give it to our Government because it makes my taxes go down.”

Who is this, Warren Buffett?

[TheOldLady]

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[troy McClure]

But Milk is not a Taxable item in California.

[Christian Engineer Mass]

“You may see it as the more kinds of taxes, the more taxes raised”

No that’s not my point.

[ngat]

“What difference does it make if you pay 9+9+9=27 % or 6.2 +1.45 + 25%=32.65% ?”

Thanks for making my point!
Don’t you see now?

This 9-9-9 is a part of the shell game. It’s touted as being revenue nuetral - but in reality, it will allow them to confiscate as much of your wealth as necessary to continue the charade PLUS whatever it takes to sustain the 15 trillion dollar deficit these same jerks have run up in the name of “benevolent” government. In our name!

So by buying into this, conservatives are distracted from the fact that the problem is a massive debt, out-of-control spending, massive regulation, unlimited worldwide military commitments and the only way out is reduction of the role of the Federal Government. Instead, we are reduced to arguing about how to change the tax code to best raise enough money to feed this monster.

[rolling_stone]

there are three problems, too much spending, not enough jobs and a corrupt tax system I see you are content to keep all three.

[txroadkill]

I realize it won’t help to tell you this, but the reason the government spends so much of your money is because those people you speak of with no skin in the game, or those type of people, rather, vote your money into their pockets.

Tell that to Reagan. It's not the working people like my employees that benefit from high taxes and they know it. It's the Leftist who want the money to give it to people who produce nothing I.E. solar panels, welfare recipients. Employed people tend to vote against giving money to people who do nothing. Obama understands that so well his solution was to unemploy everyone.

But consider this, the reason why Obama won in 2008 is because he co opted the Conservative platform of lowering taxes. He lied, but it worked. The person who is going to win in 2012 is going to be the one who tells the people I am going to get you more money in your pocket. Obama will do it by saying he is going to take it from the rich and give it to you. The Conservative message has to be, "I'm going to take it from the government and let you keep it and I'm going to help you make more". Do you really want to hitch your wagon to the guy who is saying I am going to create a new way to take money from you and give to the government? That message will not win.

[rolling_stone]

..But they WON’T stop the income tax...

If things don't change when you get out of college, you wont have to worry about income tax, there will be no job for you. Who do you plan on engineering for,builders of homeless shelters and prisons? 999 /fair tax will stimulate the economy and create jobs. Any businessman knows it by their own experience.

What kind of engineering are you studying?
An I beam has length, width, weight, and strength all to make up its load bearing. You can change one or the other and get the same results, just like three taxes or two to get an equal net tax. If they wanted to increase taxes, which is harder to increase it on 100% of the people who would be paying taxes under 999 or 50 % of the people who are paying taxes under our current system? Would you rather be on the same team as 100% of taxpayers or on the team with 50% of the taxpayers fighting the other 50%? for crumbs?

Don't forget unless the economy gets better no jobs no prosperity and no SS for you. What will happen to tax rate then?

http://www.miseryindex.us/urbymonth.asp

http://www.economicpopulist.org/content/u3-and-u6-unemployment-during-great-depression

[I am Richard Brandon]

Just read in Britain's Daily Mail that their Tax Man - not the Government, mark you - has decided to extend VAT (currently 20% - over twice times Cain's suggestion) to all manner of cosmetic procedures, including boob jobs! "no tax will apply if the procedure has ‘the aim of protecting, maintaining or restoring the health of an individual’" How's that for opening the door to all manner of lies?

[jaydee770]

>>...A retail sales tax doesn’t do anything to lay down the framework for a VAT...<<

I don’t hear anyone calling it a VAT. I hear plenty of folks who fear what a future Dem Majority will do with an additional federal tax avenue. The point being that right now, all they have is the income tax (one avenue). Add the RST and now some future Dem majority has two avenues to fiddle with giving the federal government a second way to dip into our wallets.

As for converting Cains RST into a VAT, all a future dem-majority need do is pass the legislation and the RST becomes a VAT. I don’t think that future Dem Majority will give a rats-patoot that the two aren’t related.

I was once convinced that Obama-Care had a snow-ball’s chance and would *never* get passed. Well, the take-away from that is that *anything* is possible when you control the majority — without regard to constitutionality.

The law of unintended consequences should be kept foremost in mind. I think that is what folks fear the most. If Cain’s plan provides for some **really** robust safe-guards to prevent that future dem-majority from making us wish we had never considered an RST alongside an income tax, then he needs to start publicizing those safe-guards loudly and often.

For starters, he can explain how he gets the constitution amended to strip the income tax and how he keeps the Dems from proposing any other amendments when that window of opportunity opens. I hope the answer to both of those is NOT, “We’ll rely on Boehner and McConnell to shepherd it through.”

The fears are well founded. Cain should be able to address those fears believably. If he does, I’m sure he will gain more acceptance for his plan.

[Revolting cat!]

In Europe (that’s a continent East of here with many countries) there is a VAT at the cash register, and yet, many manufactured products sell there for less than their prices in the United States.

[Pharmboy]

I sent this to a friend who is from Argentina, and has since moved here. His comment:

Your explanation about the VAT is missing something:
The recipient of an Invoice with VAT can use the sum paid for VAT as credit when he reports it to the IRS. Only the final consumer has no way to pass it on.

Our Latin American experience has shown us that high VAT ( in Argentina 21% !!!) or be it the planed federal sales tax which would have to be added to the existing State Sales Tax , that is depending of the State a total of about 16% leads to corruption.

Take the example of a dentist: As dentistry is not covered by Insurance, patients don’t need an invoice. There will be the temptation to ask the dentist not to charge these about 16% and doctors will agree to do this to keep the patient. The dentist will pocket the income and obviously can’t report it to the IRS.
The next step is that the dentist needs materials/equipment but since he has not enough reported income to afford this, he will make the purchase of his materials/equipment dependent of who will supply him without charging the sales tax. And like this the chain of unreported income will continue and a so called “Black Economy” is set in motion.

This is no fantasy but our bitter argentinean experience. Argentina was once one of the wealthiest countries and this example , next to other socialist system regulations, are responsible for the country’s decline.

[An.American.Expatriate]

Offset by what?

They are offet by VAT paid by the seller when he pruchased the product.

In tax law, VAT is treated as a 'transitory item' for producers, so that the deductible VAT which a producer has to pay on his purchases does not represent a true cost component for his own calculations and can be regarded merely as an advance installment of the VAT which he has to calculate on his own turnover, thus leaving him only the difference to pay to the tax office.

[RainMan]

Funny, I did not think I was analyzing 9-9-9, I thought I was explaining how VAT worked. I even said I saw nothing in 9-9-9 that looked like a VAT. Read first next time please.