[lewislynn]

So you mean they had huge tax breaks on exports without the Fairtax exemption and still can't really compete?

Have any of you at AFFT bothered to ask what the WTO thinks of the Fairtax and if it would be OK with them for us to have it?

[Conservative Goddess]

No Lewis, The so-called "huge tax breaks" afforded to US companies were nothing more than an attempt to counter the full border-adjustability of the VAT.....which in fact acts as a subsidy.....more on that later.

With respect to the FairTax being fully border adjustable, I see absolutely no reason why the WTO could deny it.

The day that the tax panel released their findings/recommendations, they also released a convoluted recommendation which they deemed a "consumption tax". It was, and still is, unclear whether that tax system they proposed would be eligible for border adjustment. If was a backward, left-handed way of only taxing consumption, but it was based on income. My hunch is that the consumption tax as proposed by the panel would not be border-adjustable because the true incidence of the tax would depend on the decisions of individuals, and therefore, blanket generalizations would NOT provide a valid basis for border-adjustment.

The WTO denies border adjustment to the Corporate Net Income tax precisely because its true incidence is not predictable or quantifiable....arguing that full border adjustment would amount to a subsidy in those industries where it is incident on the shareholders or employees. And that is a true statement. The only problem is this: The VAT suffers from the same defect.

INCIDENCE 101:

The VAT is thought to be fully incident on the consumer, therefore it is eligible for border adjustment. The premise is false. The VAT is potentially incident on the same three groups of people as the CNI(shareholders, employees and consumers).....and here's why:

To the extent that the VAT, by raising the final price, reduces consumption it reduces sales volume....the incidence of the VAT is therefore shifted back to the investors via lost profits and back to the employees via lost wages. To the extent that the VAT is incident on employees or shareholders, full border adjustment amounts to a subsidy. The US response to this (via the DISC, FSC, ETI) was nothing more than an attempt to counter the hidden subsidy. By dis-allowing these preferential tax treatments, the WTO tilted the playing field in the direction of Europe....all under color of law. Nuts to that.

The WTO is a redistributionist NGO, and we have to remove an arrow from their quiver: The Corporate Net Income Tax.