Olivier Garret, CEO, Casey Research: "U.S. Taxpayer Alert: We're About to Adopt Europe's Stealth Tax Model"
With few on Capitol Hill pushing for any significant reduction in expenditures, massive tax increases become inevitable. The challenge for the politicians is to ratchet up the tax collections, but in the most politically acceptable - i.e., non-transparent ? fashion possible.
The "value added tax" fits that bill perfectly. In its simplest form, a VAT is a tax on the creation of value. At each stage of producing a product, from raw materials to fabrication, to assembly, to packing and shipping, each company is responsible for paying a tax on the value it adds.
As the VAT is always included in the retail prices, and consumers never have to pay more at the cash register, the tax increase would be hidden.
The only hope to avoid the VAT is if the Democrats suffer serious losses in the mid-term elections this November and the Republicans remember they are anti-tax - leading to a political gridlock that keeps any sweeping grab for new taxes off the table for the time being.
Even if those in Washington got extremely serious about cutting spending, taxes will have to go up. The amount you can cut by isn't enough.
The problem with a VAT is how do you value goods when they enter the country. The only thing that works is to tax them at the full VAT rate as they enter. If you do anything less, it pays companies to move production out of the US. A tax at the VAT rate would be called an import duty by others. This would mung the whole "free trade" thing. This is the biggest thing preventing the VAT in the US.
There is another tax increase that could be done and most people would be in favor. The fund managers get paid in what is called "carried interest". This is not like wages in that it gets taxes as though it is capitol gains. It is a loophole by which some of the very richest people avoid paying income tax on their income. These are the same folks that helped make the giant mess out of the economy and they really don't contribute anything of value. The amount that the government will get just by calling their income "income", isn't really enough to matter but it would help to reduce the insane incentives that cause smart people to go into that field instead of any of the productive ones.
People in europe are fully aware of the VAT. It doesn't get hidden from all but the dumbest people.
Grid lock, unfortunately also leads to "log rolling". The "I'll vote for yours if you vote for mine" deals lead to the worst of all worlds. Since obviously the Republicans only started to worry about the deficit on the day they lost power, giving them more power will reduce the amount they care.
That's not correct. VAT is applied on all imported goods, but as it's rebated back along the chain (except the end retail consumer) there's no more and no less NET tax on imported goods than on locally made goods. Completely legitimate; it's not an import duty. The total tax paid is the same percentage of retail price in either case.
Best regards, Spehro Pefhany
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What I said is correct for the political reality of what is really likely to happen. The only way to do it that would work would be to make the VAT apply to the full price at the time of import. This would be called an import duty by others.
Parochial nonsense. Germany exports like no other country, and all its citizens and factories pay VAT. If you want a sales tax that makes sense, VAT is the way to go. The French were the first to introduce it
- in 1954 - though the idea came from Germany.
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Not-invented-here doesn't seem to have discouraged lots of other countries from adopting it, but God's Only Country is remarkably cautious - not to say paranoid - about adopting foreign innovations. John Larkin doesn't like anything he doesn't understand, and he doesn't spend much time understanding stuff outside of electronics.
Nonsense. The "free trade" thing would no longer be a give-away, it would finally *be* "free".
All taxes are "capitol" gains. That's the real problem.
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Right, this isn't about raising revenue, it's about "fairness". BS.
It *is* hidden, by definition. Make it a sales tax and it's right there in the open. Politicans would change it at their peril.
There are a significant number of the new guys (and gals) that aren't from the old political class. There are a number that are seriously looking at Paul Ryan's proposals. I expect them to be in the forefront come about September.
I never understood that. If someone imports a Chinese widget for e10 and sells it for e12, what is taxed and what is rebated?
The paperwork sounds like a nightmare anyhow. I assume it adds to all the other taxes and fees a business has to deal with, as opposed to replacing any.
I recall predicting for some years now, in this newsgroup, the inevitable demographic and economic crisis that Europe was manufacturing for itself. And I recall your consistant (and self-serving) defense of European policies. The detail I was wrong about was in not anticipating how soon they'd hit the wall.
The US doesn't need any "foreign innovations" like the economic policies of France and Greece and Italy, or the energy policy of Spain.
Even Ireland, my ancestral homeland, turned out to be a disappointment. They weren't so much working and innovating as sucking up (borrowed) money from the EC. I guess my great-great grandfather got out while the getting was good.
Germany does have its, well, Germanic work ethic, and they did just announce raising the retirement age to 67, so they will be ok *IF* they can decouple from the rest of Europe. That process will be interesting.
This is good, but you'll reject it as right-wing propaganda. Wait another year or so and we'll see.
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I love that phrase, about europe's "aspirational pull or soft power."
It's taxed at x% at import. That money shows up as a credit when the tax filing is made, against tax collected. If I buy $1,000 worth of stuff from Digikey, then $50 tax is paid (Digikey collects it and remits it). Say I then resell the $1,000 worth of stuff to Germany for $1,200. I collect tax at a rate of 0% for exports, so if I do nothing else, come filing time I get a check for $50 in the mail. If it's sold domestically, then $60 is collected, and I remit another $10 at filing time. If I clear an import myself (say a sea shipment) I submit the required paperwork and give them payment for tax and any import duty (rarely these days is there any import duty for electronics stuff) before they release the shipment.
It's not really paid by business, thought it does involved some paperwork (really almost entirely the same paperwork you need to do to income tax, so it's not really much extra work). If you have a spreadsheet of expenses and revenue, it adds a column, but you need the rest of the spreadsheet anyway. The bad side of not having that column is that sales tax on non-production stuff gets embedded in your costs (eg. computers, office stuff, some types of equipement). Most purchases for a manufacturer, of course, are exempt sales tax, and most manufacturer don't collect sales tax (or rarely do so). There's a simplified method that some very small businesses use that uses some kind of standard ratio for costs, but I figure it's better to do it in detail and have the work done for end of fiscal year.
The nice thing here is that it's going up from 5% to 13% in a couple weeks, which I hope will attract more busineses to Ontario (!). It's replacing the 8% provincial income tax, meaning that _all_ the embedded sales taxes will be backed out of manufacturing costs. As well, they're chopping the already low corporate income taxes.
Scroll down to the bottom of this page to see the effect of tax reform on some example businesses.
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We're holding off on a couple major purchases to take advantage of this higher tax rate. ;-) Effectively an 8% discount. Downside is that end consumers will be taxed at 13% on services, not just 13% on goods and 5% on services, but that's down in the noise (and the gov't is giving many people checks of $330 or something like that in the mail to make them feel better about it).
Best regards, Spehro Pefhany
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"it's the network..." "The Journey is the reward"
speff@interlog.com Info for manufacturers: http://www.trexon.com
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Sales tax is not any simpler. If you want it simpler, simply don't claim back the tax paid and you will have the current situation.
To get the flexibility to accomplish tax reform (eg. flat tax) it's advantageous to be in a balanced budget or surplus situation, not so far in the hole that you can't see a scintilla of daylight.
Best regards, Spehro Pefhany
--
"it's the network..." "The Journey is the reward"
speff@interlog.com Info for manufacturers: http://www.trexon.com
Embedded software/hardware/analog Info for designers: http://www.speff.com
Collected at each stage and the prior stage rebated, except the final customer doesn't get the rebate because he has no one to collect the rebate from. The final rate is 20% of the sales price.
Sure it is. It's collected once with no rebating going on. Only the final seller has to report to the IRS.
Huh? With the current system, not costs are taxed, only profit (in theory it's taxed, anyway).
Picky, picky. A flat tax would be far easier to implement than any other. Reagan's tax structure was relatively flat. A few more Reagans to flatten it further would have been good.
Every purchase and every sale is (to simplify things a bit) either taxable or non-taxable. If a business in California buys a computer from Texas and sales tax is not collected, then the business has to remit a use tax to the State of California, right? Theoretically, individuals do too, but it's pretty much unenforcable except for things like cars that require registration. Businesses have to maintain records that will stand up to audit.
It's the exceptions and choices that complicate things, not stuff that is consistent.
Some costs (direct) are not taxed, some are. VAT eliminates the tax on the costs that ARE taxed.
I tend to agree, but maybe you can't get there from here.
Best regards, Spehro Pefhany
--
"it's the network..." "The Journey is the reward"
speff@interlog.com Info for manufacturers: http://www.trexon.com
Embedded software/hardware/analog Info for designers: http://www.speff.com
Correct, though if you want to be picky, it's a "Use Tax", not a sales tax.
Sure, but they don't have to keep track of every dime passed through (for sales tax purposes).
Every corporation must file a tax form. With a sales tax, only those selling to the public, or buying for their own use, need file. With your VAT, everyone in the chain has to track every purchase and sale, on both ends of the transaction.
You're not making any sense. With the current system *incomes* are taxed.
Only because we have (very close to) half of the people currently paying no tax. Why would they want to change that?
If you'd ever been responsible for corporate filings, you'd know there's a lot more than one tax form due per year. I think it's closer to a dozen per active corporate entity at a minimum, more as you exceed threshold amounts. Frequent payroll deduction forms with employer contributions (the big one- where governments get most of their revenue) corporate income tax (maybe with more frequent installment payments, business taxes, and GST sales tax (we're not registered for PST since we don't sell to the public).
Every business has to track every purchase and every sale anyway, for income tax purposes. If you don't you lose out on claiming the expense for income tax purposes, or you are evading tax if you don't report every cent of income. I really don't see any big deal one way or the other. The GST return is a simple one-page affair that I can fill out in a few minutes once I have the numbers. Usually half the numbers are NIL (the adustment and real property amounts), they only get part 2 (the 3" bit at the bottom, and typically only 101, 105, 108, 109 and
115 (or 114) have associated non-zero numbers.
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Couldn't get much simpler than that! Only three numbers are derived from records.
-sales over the period (quarter for us)
-total tax paid over the period
-total tax collected over the period
The other two are the difference between the last two above. I can't imagine what kind of records system would not allow those numbers to be rapidly produced. Even a shoebox filing system is not too bad.
Compare that to assigning capital purchases to appropriate pools for depreciation and tracking them over multiple years, recapturing upon sale or handling disposal. Ugly stuff.
Best regards, Spehro Pefhany
--
"it's the network..." "The Journey is the reward"
speff@interlog.com Info for manufacturers: http://www.trexon.com
Embedded software/hardware/analog Info for designers: http://www.speff.com
ERR..The way i read it is the VAT wold apply INSIDE the US every time materials or a product is handles by any company. EG:
1) paint solids and solvents and ?? and empty cans --> processed --> cans of paint (buckets or spray) ==> VAT.
2) metal plate --> milled to hollow block as some kind of container ==> VAT --> block painted and cover added to make shielded container ==> VAT
--> wholesale warehouse ==> VAT --> retail disty ==> VAT --> buyer ==> VAT --> using company to make some kind of article ==> VAT.
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