Which brings up another disturbing point. Wouldn't the WTO fight the Fair Tax tooth and nail?
I'm sure the WTO will fight anything tooth and nail that they view as against their self-interest. As it is, though, with our current tax system we are so busy shooting ourselves (our citizens, really) in BOTH feet that they're not too worried.
Fortunately neither the WTO nor the UN gets to make our tax laws despite their great desire to do so.
The WTO can authorize retaliatory sactions for many reasons....they did so on the basis that the DISC, FSC and the ETI were "impermissible export subsidies"...they just happened to be tax related. Removing the Corporate Net Income Tax from the equation will remove but one arrow from the quiver.....they'll just have to think up a different rationale.
I think the bigger threat will come from the OECD. They're the ones pushing int'l tax harmonization and information sharing. Their model treaty is frightening...calls upon member nations to provide information even if they have no internal use for it. Would basically require us to keep the tracking and reporting systems in place, if the model treaty is used for any bilateral agreements.
Neither the WTO or the OECD can directly impact our tax law.....but they do work hand in glove, probably would cooperate, and the WTO has demonstrated a propensity to make life real uncomfortable by authorizing retaliatory tariffs.....until our elected officials buckled and changed the tax law.
To an extent, they're playing with fire. We removed the ETI provision, which accounted for just over 49 billion in 'subsidy' over the course of 10 years. The replacement provisions of HR 4520, granted subsidies of almost 108 billion....an increase of over 119%...ha, take that.
Ken Dam correctly noted that "there is nothing more fundamental to a nation's sovreignty than the way they raise revenue"...and to the extent that we can minimize the influence of unelected, unresponsive int'l bureaucrats, we'll be a whole lot better off....and they'd better becareful how far they push.....seems we're dishing it back at them in spades. FairTax would be the ultimate, in your face, kinda deal.
Wouldn't the WTO fight the Fair Tax tooth and nail?
Not much they can use to fight it with.
The FairTax is an Retail Sales Tax, an indirect tax under WTO rules, just as the VAT is.
As long as import products are treated equally in comparison with the tax treatment of domestic products and the tax is indirect, there is no problem with boarder adjustments to rebate taxes that are imposed on exporting businesses so long as the rebate does not take on the character of a subsidy (i.e. exceeds domestic indirect taxes paid by the exporting business.)
For a retail sales tax, there is no tax on exporting businesses to be rebated, (i.e. nothing to interpret as a subsidy.) Furthermore the FairTax legislation, HR25, specifically taxes imports and exports identically. No leverage on which WTO can be used to fight it.
EU & Trading partners can gripe all they wish, but the have no handle under WTO/GATT to grab hold of.
As Kenneth W. DAM, of the Department of Treasury states the issues:
http://www.finance.senate.gov/hearings/testimony/073002kdtest.pdf
"The WTO rules on prohibited export subsidies make a distinction between direct taxes, such as income taxes, and indirect taxes, such as value added taxes. Under the WTO agreements, direct taxes are not permitted to be border adjustable. Therefore, the U.S. income tax is not rebatable on export under these rules. In contrast, indirect taxes are permitted to be border adjustable under the WTO rules. Accordingly, the European value added taxes may be, and are, rebated at the border consistent with WTO rules.
This disparity in treatment between direct and indirect taxes dates back formally to a 1960 GATT working party and its informal origins date back even farther. Notwithstanding this long history, there is no compelling rationale for disparate treatment of direct and indirect taxes."
"Which brings up another disturbing point. Wouldn't the WTO fight the Fair Tax tooth and nail?"
They might not like it, but they don't have a legal objection. After all, we can simply point out that we want to start taxing imports the exact same way that we tax our own goods. We aren't introducung a bias in favor of US produced goods into our tax system; we are eliminating one in favor of imports from our current system.
BTW, did any of you see the first panel of Wednesday's hearings? Two professors testified in favor of VATs. They both agreed that we should consult with the foreign trading partners before eliminating corporate income taxes. I was very surprised to hear that recommendation.