Posted on 04/26/2007 6:07:19 AM PDT by A. Pole
Daniel Drew, the legendary 19th century Wall Street insider, reputedly said that all he wanted in any deal was "a little unfair advantage." Most of America's trade competitors seem to want the same thing, or even a big unfair advantage.
Imagine how it would help the competitiveness of American exporters if U.S. companies could cut their prices an average of 19 percent in Europe and 17 percent in Asia. Imagine what it would also mean if foreign imports into the United States from overseas were raised by the same percentages.
U.S. financial generosity to our allies after World War II included giving them special trade advantages to help them speed up their post-war recovery. We agreed that they could rebate to their producers any indirect taxes they paid on goods they exported to us, and they could also impose an equal charge on any U.S. products they imported.
Those nations recovered from World War II many years ago, but they still cling to what started out as a little advantage but has steadily increased to become a massively unfair advantage. The cost to U.S. producers increased to a whopping $327 billion in 2006.
In practical terms, this means that the German manufacturer of a car exported to the United States gets a rebate from the German government equal to the indirect taxes paid in Germany, a type of tax called the Value Added Tax (VAT). Since the VAT rate in Germany is 19 percent, the German carmaker gets a 19 percent tax rebate on every vehicle exported to the United States.
That's a significant subsidy to German auto manufacturers which enables them to sell cars in America for much less than they sell for in Germany. But what about American cars exported to Germany?
A U.S. manufacturer exporting an auto to Germany must pay the German government a VAT equivalent tax of 19 percent of the price of the car plus 19 percent of all the costs of transportation, insurance, docking and duties involved in getting the car to Germany. The U.S. company gets no credit for corporate taxes it pays in the United States.
Today, 157 other countries use a VAT tax system that gives foreigners a large and unfair advantage over U.S. producers in both our markets and in foreign markets. This two-edged sword cost American producers $327 billion in 2006.
But that's not all. The VAT advantage also creates a perverse incentive for U.S. companies to move their plants and jobs to other countries so they, too, can take advantage of the VAT subsidy.
Thousands of U.S. producers have already shifted their production overseas to get the same tax break, and more are ready to follow. Even companies that don't want to leave America have little choice when faced by competitors who move overseas and cut their prices.
U.S. producers face another inducement because most banks are now reluctant to lend money to companies that refuse to move offshore, particularly to China. The banks don't want to risk lending to a company facing such strong disadvantages.
The outsourcing of factories and jobs is devastating towns, counties and states all across America. It badly reduces the tax revenues that would otherwise be paid by successful U.S. companies and their employees.
Congress tried repeatedly to address this injustice by instructing our trade representatives, in 1974, 1988 and 2002, to negotiate away the unfair VAT advantage. Our so-called friends and "trading partners" refused to deal with the issue, or even to talk about it.
Congress tried another tack to redress the VAT imbalance by modifying our U.S. tax system in 1971, 1984, 2000 and 2004. But the European Union filed a case against us at the World Trade Organization in the early days of the George W. Bush Administration and got the WTO to rule our legislation illegal.
Our laws were completely constitutional, but Congress decided to repeal them rather than risk a trade war.
The big question is, how can the United States offset this massive economic disadvantage that cost our producers $327 billion in 2006, and resulted in the loss of three million U.S. manufacturing jobs in the last six years?
Some Members of Congress are now considering legislation to allow our government to impose a fee on imports from other nations that is exactly equal to the VAT subsidy given them by their home government, and also to give U.S. producers a rebate on their exports exactly equal to the VAT charge imposed on them by a foreign country. The former would more than pay for the latter, so this plan should be cost-free to U.S. taxpayers.
The goal would be to get equal treatment for U.S. producers both in home and in foreign markets. Our hope would be that foreign countries that have been enjoying the VAT scam would realize that the United States is no longer willing to be Uncle Sucker, so they had better change their policies and agree to a level playing field.
China has a 17% VAT.
Interesting facts. And still, the subsidy U.S. consumers and taxpayers make to overseas competitors is not enough for the globalist crowd. That’s why they are calling for carbon credits and other such schemes (plus unrestricted importation of the third world) to accelerate the trend and bring us down to their level.
Want one?
Would you like a suggestion for a solution?
Here's one that is both simple and difficult:
Get your Senators, and the remaining 98 other Senators to recind (cancel) our membership in the WTO.
Ridiculously simple in concept, that is; everyone can understand it immediately.
Excrutiatingly difficult to execute; you have to convince the globablists to reverse their thinking.
This article shows a distinct lack of understanding of how VAT works in the EU. I own a company that is VAT registered and can tell you categorically that these supposed VAT advantages do not exist in the way described.
If my company sells a client £1000 worth of goods or services I invoice them for £1000 plus VAT at 17.5%, ie £1175. On the purchases my company makes I also pay the price plus VAT. At the end of the year I subtract the VAT I have paid out to others from the VAT I have Invoiced for my services. If there is a surplus I pay it to the govt, if there is a negative amount I pay nothing. Thus VAT is only paid if invoiced VAT exceeds paid out VAT.
If a British car maker builds and exports a car to the US it is an export sale and is VAT free. He cannot claim back any VAT on exports because you do not charge VAT on them. So the US dealer/buyer pays the UK price ex-VAT. The UK buyer buying the same car pays the same price the US buyer did plus VAT plus dealer markup. When a US car is exported to the UK the UK dealer has to add VAT on before selling it, but can claim some or all back against the VAT he has paid out as described above. The UK buyer cannot claim the VAT back and has to pay it. The US dealer simply sells the car on at his no-VAT cost price, plus his markup to the US citizen with no VAT involved. That is one of the reasons cars are much cheaper to buy in the US.
Are you saying that none exist or that they exist in different way than described?
US products sold in foreign countries have our income taxes (on both US and foreign profits) plus the foreign countries' VAT.
In both instances US products start at a disadvantage to foreign products. We should be working on a better tax code that would treat both foreign made products and US products the same way instead of trying to punish other countries for having a better tax method than our income tax. (Cue the Fair Tax supporters)
Did I miss something? Did we have a conservative Congress? Where? When?
‘Are you saying that none exist or that they exist in different way than described?’
I am saying that the claim in the article that EU exporters to the US get a 19% tax rebate is nonsense as export goods do not attract VAT so VAT cannot be claimed back.
From HM Revenue and Customs:
“If your business exports goods to countries outside the EC the supply may be zero-rated for VAT provided you meet certain conditions. You must:
ensure that the goods are exported from the EC within specified time limits
obtain evidence that the goods have been exported.
As proof of export you must retain documents that identify:
the exporter
the customer
an accurate description and value of the goods
the export destination
the mode of transport and route of the export movement.
If you do not meet all the conditions the supply cannot be zero-rated and you must account for VAT at the appropriate UK rate.”
‘So products made in foreign countries and sold in the US have very little tax built into the price. The VAT was removed at the border and the price structure is set up so that very little US profits subject to income taxes are made.’
No, the VAT was never added to begin with if the goods were destined for export. If a good is zero-rated, not VAT can be reclaimed against it. Goods made in the EU and exported to non-EU countries are zero-VAT rated. The export price contains no tax whatsoever, it is made up entirely of the cost of production plus any profit added by the manufacturer so no tax is applied or rebated by anyone. When a US car arrives in the EU, VAT is added at the local rate before the car is sold, but, the same amount of VAT is also added to locally produced cars, so there is no price disadvantage in terms of the retail or sticker price. Individuals cannot claim back the VAT on car purchases.
‘In both instances US products start at a disadvantage to foreign products.’
No they don’t - any taxes added or reclaimed to a US manufactured vehicle is also added at the same percentage to EU made products.
‘We should be working on a better tax code that would treat both foreign made products and US products the same way instead of trying to punish other countries for having a better tax method than our income tax.’
Completely agree - I lived in the US for two years and your tax system is terrifying. The Uk one is very simple and all done online taking your average Joe about half an hour a year. America deserves better than your IRS!
BTTT for the truth.
So when a car is exported, there is no credit for the VAT already paid at all previous levels of production ?
Ordinarily, when a delaer buys a 20K vehicle from the manufacturer he would pay 4K in VAT. Then if he sold it in the UK for 25K, he’d collect 5K VAT from the customer (total paid 30K), offsetting the 4K he had already paid and sending only the additional 1K to the government.
If he is going to export the vehicle and sell it in the US, you are saying he paid the 4K VAT but gets no rebate ?
Your analysis trying to dispute this claim shows it:
So products made in foreign countries and sold in the US have very little tax built into the price. The VAT was removed at the border and the price structure is set up so that very little US profits subject to income taxes are made."
This was essentially dead-on accurately recounting the situation. Quibbling about a "zero-tax" or "removed at the border" tax is simply an irrelevancy...a distinction without a difference.
The key import of the analysis is the effect on import/export in the respective countries. You then misreply, by arguing that the internal European market is not "advantaged" i.e., when you assert:
but, the same amount of VAT is also added to locally produced cars, so there is no price disadvantage in terms of the retail or sticker price.
...but that misses the point. And you also miss the additional point that our manufacturers also have to pay profits income tax for sales there....back here.
And most conclusively. The 157 or so VAT-subject manufacturers are advantaged in the U.S. market due to your mercantilist tax structure!
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