Since we are all talking about this fiscal cliff, I have seen mention by many of implementing & increasing federal taxes on many things... income, carbon emissions, sin taxes, luxury taxes, etc.

Should the US federal government impose a VAT (value added tax) to all goods and services in the US so they don't have to cut spending? In the UK they do this. In the UK, they have a 20% VAT...is it feasible in the US to have a 20% VAT?

Obama said in 2010 he was open to the idea of a VAT; however, his aides rejected it. Maybe Obama should consider a VAT if the US federal government is going to continue to spend at the rate it is.

11/9/2012 4:41:44 PM

or maybe, we could...wait for it....

stop spending so much?

11/9/2012 4:46:32 PM

20% is way too high

Not that a VAT would gain traction anytime soon no matter how high or low it may be

11/9/2012 4:53:02 PM

I support a VAT. Anything to tax consumption instead of investment and savings is a good idea in my book.

Set the VAT somewhere in the range of 6-10%, and offset some of those added revenues with cuts to the corporate tax rate.

11/9/2012 5:20:53 PM

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"20% is way too high"

Well, our debt is way too high.

11/9/2012 5:21:43 PM

^^Would you be in favor of a consumption tax that replaces income taxes?

11/9/2012 5:50:57 PM

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"Set the VAT somewhere in the range of 6-10%, and offset some of those added revenues with cuts to the corporate tax rate."

isn't the point to add total revenue?

and why is a normal person championing reducing the corporate tax rate anyway?

11/9/2012 6:13:06 PM

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"isn't the point to add total revenue?"

I think deficit reduction needs to occur gradually over the better part of a decade. Increased taxes are austerity measures that put downward pressure on economic growth. We can't afford that right now. The more effective debt management solution is to encourage economic growth, and gradually increase taxes after the economy has made a full recovery. No matter how you slice it (tax increases, spending cuts or a combination of the 2), getting rid of the deficit means taking a huge amount of money out of the economy. It's not tenable in this time of economic uncertainty. However, we can grow our way out of the current debt crunch we are seeing. It's just a matter of instituting pro-growth tax policies and regulations, while gradually reducing the size of the deficit over many years.

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"and why is a normal person championing reducing the corporate tax rate anyway?"

Our manufacturing sector is at a global disadvantage with tax rates being as high as they are. Our statutory corporate tax rate is nearly 40% (depending on the State they reside in), which is higher than any other industrialized nation. While financial services companies, complex multinationals and internet companies can get around these prohibitively high tax rates, manufacturers and other exporters simply cannot. A key to full economic recovery is to put the US manufacturing sector back on an even playing field with the EU and Asia. This means getting the corporate tax rate down to 28% or less.

[Edited on November 9, 2012 at 6:42 PM. Reason : 2]

11/9/2012 6:38:26 PM

Just to point out, the UK has an income tax and a VAT tax.

I think the VAT tax is dumb, but if the US is like the UK, they should start off at 5% and then move up to 20% like the UK did in 2011. People don't notice the subtle changes.

[Edited on November 9, 2012 at 9:23 PM. Reason : .]

11/9/2012 9:18:07 PM

VAT in lieu of income tax would be acceptable... would encourage investment, saving, etc (personal responsibility)

11/9/2012 10:02:42 PM

^

Yep.

...or VAT in addition to greatly simplified and reduced income tax.

11/9/2012 10:14:21 PM

Like all the Mediterranean countries that are big savers

11/10/2012 5:51:32 AM

They don't have our kind of sales taxes in the uk.

20% tax added by the federal government, on top of state and local sales taxes, would be ridiculous.

11/10/2012 7:29:05 AM

What about a 20% VAT in addition to sales taxes on luxury items, like boats, clothing items over 25 dollars, etc.?

11/10/2012 8:58:41 AM

yes, we need to punish those evil boat buyers!

11/10/2012 9:10:30 AM

Well let's be honest - boats are pretty much on the top of the list of completely pointless bullshit for most people

11/10/2012 9:26:20 AM

You can say that about anything; anyone can justify a tax on any item they deem to be a luxury item. It's a horrible idea. Either go to a flat income tax for all or a national sales tax for all.

11/10/2012 9:35:40 AM

This type of tax scheme would shift our barely progressive tax system to clearly regressive. So if you believe in progressive taxation then it just isn't an option until you get into rebates, etc.

When you include mostly flat/regressive state taxes, fees, and payroll taxes then our overall tax system is barely progressive:

http://ctj.org/ctjreports/2012/04/who_pays_taxes_in_america.php





more evidence that overall state tax systems are regressive:

11/10/2012 10:20:59 AM

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"You can say that about anything"

I wasn't seriously saying shit on boat owners

But other than those who use boats to make their living, they are pretty fucking worthless and have no purpose other than entertainment.

11/10/2012 11:00:51 AM

How about having VAT being based on your income as a progressive solution. You have a national ID card that you have to swipe before you buy anything.

At incomes above $100,000, the VAT kicks in.

At incomes at $200,000, the VAT would be 50%.

At incomes at $300,000 the VAT would be 66.7%.

At incomes at $400,000 the VAT would be 75%.

Etc.

11/10/2012 1:05:10 PM

...then it wouldn't be a VAT

and that idea would cost more than any possible revenue

[Edited on November 10, 2012 at 1:07 PM. Reason : ]

11/10/2012 1:06:39 PM

Maybe the best option is just to drop the VAT and just tax people that make more than $1 million with a 75% tax like France if we want a more progressive tax system for the US. We could also do what Vermont does where property tax is based off your income.

11/10/2012 1:15:21 PM

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"I support a VAT. Anything to tax consumption instead of investment and savings is a good idea in my book."

So you think our tax system should favor the rich? Why?

11/10/2012 2:25:41 PM

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"So you think our tax system should favor the rich? Why?"

So you think investment and savings is only for the rich? Why?

11/10/2012 4:30:10 PM

Yes, http://en.wikipedia.org/wiki/Marginal_propensity_to_save

11/10/2012 8:08:48 PM

Yes, http://en.wikipedia.org/wiki/Marginal_propensity_to_save

11/10/2012 8:08:48 PM

The EU has shown that you can implement a VAT while keeping the tax code progressive.

Of the various sources of new revenue that the Govt can tap into, a natinwide VAT is about the least damaging to economic growth. But it'll never gain traction because it would violate the Grover pledge that the House GOP signed, and the Dems don't like it because of its regressive nature.

11/10/2012 9:33:53 PM

nm

[Edited on November 11, 2012 at 1:25 AM. Reason : .]

11/11/2012 1:20:03 AM

Quote :

"So you think investment and savings is only for the rich? Why?"

He never said "only", just implied that the rich save/invest a larger proportion of their income (therefor a smaller proportion of their income would end up being taxable under a consumption tax).

[Edited on November 12, 2012 at 11:24 AM. Reason : .]

11/12/2012 11:23:40 AM

^ if you go by dollars, the majority of capital owned is owned by the rich.

http://www2.ucsc.edu/whorulesamerica/power/wealth.html



I mean, the benefit that a reduction in capital gains tax would have on the poor is basically a rounding error. When you include debt, then you're going to have to get to like the top fucking quintile before their net worth is actually positive.



This is the nation we live in. It is ugly. The median household net worth is <$10k for blacks.

The problem with a consumption tax is that the rich won't pay it. When you go to the store to buy Gatorade you don't consider how you can potentially avoid the VAT, but if you're buying a yacht, you might have a financial advisor trying to find every loophole on Earth to exploit. It's to the point that a VAT is essentially unenforceable to the rich.

But that's not the real tragedy. The real tragedy is the taxation schemes that destroy low-yield real investments. If we had better financial markets we could get the poor into the capital markets. The commodity that the rich monopolize so well isn't exactly capital itself, it's financial innovation. Cash itself is a tax. When corporations hold cash, they hold "cash equivalents" instead - bonds, often in the form of treasuries.

That means that for the megacorps, their cash doesn't degrade in value much over time, but any cash that you hold does. The differential is paid for in our tax dollars through interest payments, no biggie.

I haven't even gotten into depreciation yet. Depreciation counts your writeoffs in nominal terms, but the value of it still degrades due to inflation. Because of crazy rules like these, investing is basically a losing proposition without financial engineering. This creates a disincentive for long-term investment. This is why companies like GE decided to forget about real engineering and innovation in the 1990s and nearly sunk their companies with monstrosities like GE Capital. It's not just their leadership, our politicians had virtually mandated the shift with tax and fiscal policy.

11/12/2012 12:08:14 PM

Quote :

"But it'll never gain traction because it would violate the Grover pledge that the House GOP signed, and the Dems don't like it because of its regressive nature"

i read a book once that had a chapter on implementing a VAT in the US. the author said republicans don't like it because it's a source of revenue for the government, and democrats don't like it because they see it as a tax on the poor, and the only way a VAT will work is if the two sides swap views

Quote :

"When you go to the store to buy Gatorade you don't consider how you can potentially avoid the VAT, but if you're buying a yacht, you might have a financial advisor trying to find every loophole on Earth to exploit. It's to the point that a VAT is essentially unenforceable to the rich"

it'd be unenforceable if you don't eliminate loopholes, so getting rid of them would probably have to be part of the deal if a VAT was ever passed.

11/12/2012 12:41:44 PM

But you can't. People will earn their incomes in places that have strong social programs and then spend it in places that don't tax as much.

Taxing at point of consumption is ultimately tied with taking away freedom of movement.

Are you going to walk out to the docks on the NC coast, inspect, and prosecute the ships that fly a Cayman Islands flag? Because if not, why wouldn't I just buy a ship in another nation and sail it here?

Ok, that was an easy one for me to cherry pick. How about housing costs? Are you going to charge a VAT on the purchase of a $750,000 home in Cary? Because if not, your VAT isn't high enough. What about resale? Do they get some of their VAT back? People will have a mortgage and never pay the VAT on that part of the capital in the first place. But wait, then why would they ever own a house, as opposed to an all-interest mortgage? Are you going to charge the VAT tax on that.

What about people who rent? Are you really going to charge them 25% of their rent?

What about charitable deductions?

What about farmer's markets?

What about health care? You're going to charge a VAT on health care?

What about insurance? Would it be charged with the premium or at the point of payout?

11/12/2012 12:51:50 PM

Pat Choate (Perot's second VP) wrote a book basically proposing this and explaining why it's both better than the current system and less regressive than a "Fair Tax." Worth a quick read.

11/14/2012 9:52:31 AM

So how would it work for imports? Exports?

11/14/2012 10:07:00 AM

Imports would be taxed exactly like domestically produced goods consumed domestically.

Exports would not be taxed, as they are not consumed domestically.

This is two-fold. It helps level the playing field at home and abroad. The goods that are exported could be sold cheaper due to the lack of "income taxes" and goods that are imported would be taxes at the same rate as domestic goods which would bring the costs in line. It instantly makes US goods more competitive in both markets and thereby reduces our trade deficit.

11/15/2012 10:34:44 AM

Yeah because the lack of US competitiveness is totally about prices on goods, not labor.

[Edited on November 15, 2012 at 10:45 AM. Reason : .]

11/15/2012 10:44:46 AM

Labor is certainly a factor, but taxes are as well.

The US has one of the highest mean corporate tax rates in the world, along with Japan & Germany. Corporations are not dumb, as they pass their taxes along to those who consume their product. If taxes on corporations were reduced, competition calls for consumer prices of the taxed goods to fall. Labor is also a factor in the consumer prices, but not the only one.

[Edited on November 16, 2012 at 12:02 PM. Reason : s]

11/16/2012 12:02:21 PM

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"The US has one of the highest mean corporate tax rates in the world, along with Japan & Germany. "

These three are also the top 3 wealth-holding countries on Earth, I think the corporations based there are doing just fine.

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"Corporations are not dumb, as they pass their taxes along to those who consume their product."

Corporations charge you exactly as much for their product as they can get away with without losing your business to a competitor. They don't sit and wait until taxes go up to raise their prices, the prices are already as high as they can manage.

When a new tax is passed, they have two choices: Swallow a dent in their profit margin, or pass it on to consumers. If 9 out of 10 companies pass it on to the consumers, guess what happens? They all lose their business to the one who didn't, and that one ends up getting more profit overall because of the increased sales volume. If you were right then the headlines would be "Every restaurant in the country raises prices." instead of a story here or there about Denny's or Papa Johns. All of their competitors are sitting quietly and smiling.

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" If taxes on corporations were reduced, competition calls for consumer prices of the taxed goods to fall."

So there's no competition when taxes raise, but perfect competition when they fall? What?

Quote :

" Labor is also a factor in the consumer prices, but not the only one."

You're absolutely dreaming if you think the US trade imbalance can be dented with tax reform. We could eliminate all taxes in the country, 100% of them, and wouldn't gain a single job back from China, Indonesia, India, etc.

[Edited on November 16, 2012 at 2:12 PM. Reason : .]

11/16/2012 2:08:54 PM

Quote :

"Corporations charge you exactly as much for their product as they can get away with without losing your business to a competitor. They don't sit and wait until taxes go up to raise their prices, the prices are already as high as they can manage."

Prices are already as high low as they can manage as well, and maintain confidence with their investors, employees, etc. How did profit become evil? Profitable companies expand, hire, generate stock market returns, offer great benefits and generally fuel the economy. A VAT would shift the tax burden to a different point in the chain of supply (specifically, closer to the end).

Quote :

"When a new tax is passed, they have two choices: Swallow a dent in their profit margin, or pass it on to consumers."

There is a third option of cutting costs, including benefits to employees (health insurance, vacation, retirement contribution). This is also a tight-rope act to attract and retain labor while still offsetting risk with reward, but we're talking about reducing income taxes and replacing them with a VAT.

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"So there's no competition when taxes raise, but perfect competition when they fall? What?"

Competition is always there. Every corporation is striving for market share, hence prices are already as low as corporations can swallow.

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"You're absolutely dreaming if you think the US trade imbalance can be dented with tax reform. We could eliminate all taxes in the country, 100% of them, and wouldn't gain a single job back from China, Indonesia, India, etc."

I agree with this in that we cannot eliminate taxes, but that a VAT would shift the tax burden. In the context of this topic, exports would not be taxed domestically and imports would, evening the market and bringing the cost of imported goods more in line with the costs of domestic goods. If a company can profitably produce and sell domestically, they would fill that niche. A VAT would be about leveling the playing field.

11/16/2012 2:52:34 PM

Quote :

" Prices are already as high low as they can manage as well, and maintain confidence with their investors, employees, etc. "

No, the prices are as high as they can manage. Why make your prices any lower than they have to be? That's not how a profitable venture is run.

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"How did profit become evil? Profitable companies expand, hire, generate stock market returns, offer great benefits and generally fuel the economy."

Actually no, they don't. Simple profit does not lead to any expansion or hiring unless there is unmet demand that expansion would meet. Any company that expands in the absence of unmet demand is wasting money.

So if we want more jobs, we need more demand, right? Oh wait, you have other ideas...

Quote :

" A VAT would shift the tax burden to a different point in the chain of supply (specifically, closer to the end)."

It would shift the burden to the people who buy products and create demand. Combine this with my statement about and you might get why this would accomplish the exact opposite of expansion. It's essentially penalizing consumer spending, which is the ultimate source of growth.

Quote :

"There is a third option of cutting costs, including benefits to employees (health insurance, vacation, retirement contribution). This is also a tight-rope act to attract and retain labor while still offsetting risk with reward, but we're talking about reducing income taxes and replacing them with a VAT."

These employee-related costs are already as low as they can get away with. Going further will necessarily push them into territory that beforehand was considered too risky, all to secure a little extra profit? Sure you can do it, but it's stupid, putting something on the line you weren't willing to, for larger sums of money that aren't essential. And, again, any company that chooses to instead swallow a profit-margin-dent will have its pick from the dissatisfied workers at the company that cuts insurance instead.

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" Competition is always there. Every corporation is striving for market share, hence prices are already as low as corporations can swallow."

In a perfect, ideal world, maybe. In the real world collusion is common if not the norm among the big businesses. Two examples: Both Pepsi and Coke have a mutual benefit from their non-competitive competition, since consumers wavering between the two of them stops them from asking questions like "What's RC Cola taste like?" (Sort of resembles the political two party system). Every single cell phone company in the US charges non-trivial rates for text messages, despite the actual cost of a text message to them being somewhere on the order of one thousandth of a cent. This is because it's simply more cost-effective for them to all price-fix together rather than compete for each others' market share. The global diamond industry works the same way, as does much of the energy industry.

Bottom line: Capitalism doesn't always work out like it does in grade school textbooks. Sometimes cooperation can be more cost-effective and profitable than competition, and there are plenty of ways to do is that don't violate anti-trust laws.

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" I agree with this in that we cannot eliminate taxes, but that a VAT would shift the tax burden."

To consumers, the drivers of the economy and the actual job creators.

Quote :

" In the context of this topic, exports would not be taxed domestically and imports would, evening the market and bringing the cost of imported goods more in line with the costs of domestic goods. If a company can profitably produce and sell domestically, they would fill that niche. A VAT would be about leveling the playing field."

It would fail spectacularly to level the playing field (No manner of tax changes will change the fact that Chinese laborers work for, literally, pennies on the hour.), and it would kill jobs in America by shifting the tax burden onto consumers (The lower and middle classes) and thus reducing their effective cash-on-hand.

[Edited on November 19, 2012 at 11:39 AM. Reason : .]

11/19/2012 11:32:57 AM

Quote :

"and why is a normal person championing reducing the corporate tax rate anyway?"

because a "normal person" understands that corporate taxes are NOT paid by corporations. They are paid by consumers. Every time we raise corporate taxes, we are only taxing ourselves. let's just be honest about it, cut out the middle-man, and just tax ourselves directly.

Quote :

"Corporations charge you exactly as much for their product as they can get away with without losing your business to a competitor. They don't sit and wait until taxes go up to raise their prices, the prices are already as high as they can manage."

Someone doesn't understand how companies actually operate. Let me introduce you to a word called "margin". Google it.\

Quote :

"When a new tax is passed, they have two choices: Swallow a dent in their profit margin, or pass it on to consumers."

No, they ALL pass it on to their customers, because they operate on margin. Companies operate on margins, at least the ones that survive do. Maybe one or two will delay the price increase for a few weeks, but they will eventually raise the price. That's just how margin works.

Quote :

"It would shift the burden to the people who buy products and create demand. Combine this with my statement about and you might get why this would accomplish the exact opposite of expansion. It's essentially penalizing consumer spending, which is the ultimate source of growth."

But you don't understand. ALL TAXES are essentially placed on consumption. How does shifting the visibility of that tax from one place to another change that? It doesn't.

Quote :

"And, again, any company that chooses to instead swallow a profit-margin-dent will have its pick from the dissatisfied workers at the company that cuts insurance instead."

No. Any company that swallows profit margins will find its investors pulling their money and going elsewhere where the people in charge comprehend margin, at which point, the swallowing company will either wither and die or figure out the importance of margin again.

Quote :

"To consumers, the drivers of the economy and the actual job creators."

How do you figure, when the consumers already pay all of the taxes anyway?

Quote :

"In the real world collusion is common if not the norm among the big businesses. Two examples: Both Pepsi and Coke have a mutual benefit from their non-competitive competition, since consumers wavering between the two of them stops them from asking questions like "What's RC Cola taste like?" (Sort of resembles the political two party system). Every single cell phone company in the US charges non-trivial rates for text messages, despite the actual cost of a text message to them being somewhere on the order of one thousandth of a cent."

This is DIRECTLY in contrast with your claim that one company will buck the trend and swallow some profit margin. Which is it? Will the companies all raise prices together, or will one of them try to swoop up some profits by making less profit? (yes, I said that right)

11/21/2012 12:52:55 AM

Quote :

"This is DIRECTLY in contrast with your claim that one company will buck the trend and swallow some profit margin."

I disagree, his text messaging example is a perfect example of why price does not always reflect cost and why corporate taxes don't get added directly to price, it's just not that simple.

11/21/2012 10:43:13 AM

the text messaging example is the exception, not the rule

11/21/2012 10:49:56 AM

Pick anything else, text messaging is just the easiest to explain, but the same concept exists in gas, cars, computers, homes, whichever. In each of these industries, in the real world, cost does not perfectly correlate with price. It does somewhat, but it's not a precise correlation, there's a lot more at work there.

11/21/2012 11:01:06 AM

so your theory is that there is collusion among all businesses in the same field that "fix" prices across the board?

I contend that price correlates with cost and risk. If it doesn't explain the competitive bid market.

11/21/2012 12:01:28 PM

My theory is simply that there is a great deal more at work determining price than just cost. Corporate taxes play a complicated role in effecting price, they aren't simply "passed on to the consumer". They are passed on in some degree, but it's not as simple as just bumping up price.

11/21/2012 1:11:26 PM

Quote :

"Corporate taxes play a complicated role in effecting price, they aren't simply "passed on to the consumer"."

Except, they are, plain and simple. Companies are NOT gonna swallow profit margins for any considerable length of time. It's simply not how business operates.

12/1/2012 12:07:12 AM