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Sat Jan 12, 2013, 09:18 PM

What is the VAT?

I heave heard this bandied about as a tax solution. From what i know, it involves adding a price to everything, making the taxes based on consumption.

My worry is, how does it not become regressive, making items like a loaf of bread harder to buy?

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Arrow 21 replies Author Time Post
Reply What is the VAT? (Original post)
DonCoquixote Jan 2013 OP
newfie11 Jan 2013 #1
Historic NY Jan 2013 #7
newfie11 Jan 2013 #19
malaise Jan 2013 #2
NYC_SKP Jan 2013 #3
PoliticAverse Jan 2013 #4
Yo_Mama Jan 2013 #5
NashvilleLefty Jan 2013 #6
Recursion Jan 2013 #8
cthulu2016 Jan 2013 #12
Old Codger Jan 2013 #9
Speck Tater Jan 2013 #10
dipsydoodle Jan 2013 #11
DonCoquixote Jan 2013 #13
JVS Jan 2013 #15
DFW Jan 2013 #16
JVS Jan 2013 #14
DonCoquixote Jan 2013 #17
JVS Jan 2013 #18
muriel_volestrangler Jan 2013 #20
FarCenter Jan 2013 #21

Response to DonCoquixote (Original post)

Sat Jan 12, 2013, 09:21 PM

1. We are leaving for Ireland next month

I know they have this so I will be interested to see what comes up on this.

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Response to newfie11 (Reply #1)

Sat Jan 12, 2013, 09:28 PM

7. Read up on it and keep your receipts if you go...

you can fill out the papers and get a bit of the money back...ask at the airport, before you go to the gate.

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Response to Historic NY (Reply #7)

Mon Jan 14, 2013, 07:08 AM

19. Thanks for the info

I certainly will.

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Response to DonCoquixote (Original post)

Sat Jan 12, 2013, 09:22 PM

2. Value added tax

on all goods and most services

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Response to DonCoquixote (Original post)

Sat Jan 12, 2013, 09:22 PM

3. Value Added Tax. I don't like it.

A paperwork nightmare, it adds a tax at various points leading up to and including sale to the final user of goods.

no, don't like it.

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Response to DonCoquixote (Original post)

Sat Jan 12, 2013, 09:25 PM

4. It's really like a sales tax. The prime advantage it has is it is harder to avoid than a sales tax

effectively eliminating a major issue with sales tax - evasion.

http://en.wikipedia.org/wiki/Value_added_tax

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Response to DonCoquixote (Original post)

Sat Jan 12, 2013, 09:26 PM

5. It is Value Added Tax

The way it works is that in every step of production the difference between value in and value received is taxed.

For imports, it generally covers the entire value, although there can be different rules.

It's basically a hidden sales tax, but with a tremendous accounting burden added.

Yes, it is extremely regressive. It makes everything you buy much more expensive. European taxes are actually much higher than ours on the lower-income people, but most of it is charged by VAT, so the tax is in the extra cost of the goods that they buy.

If we were going to do this, we should just opt for the federal sales tax like Orszag wanted.

European VATs run around 19-23%. Our economy couldn't handle that.

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Response to DonCoquixote (Original post)

Sat Jan 12, 2013, 09:27 PM

6. It's inherently regressive. nt

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Response to DonCoquixote (Original post)

Sat Jan 12, 2013, 09:29 PM

8. It's like a sales tax. It's popular in Europe

Oddly enough Europe doesn't hold progressive taxation as dear as the US does. When I'm stationed in the EU I get a refund of all my VATs every year (if I save my receipts.)

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Response to Recursion (Reply #8)

Sat Jan 12, 2013, 09:57 PM

12. Items on European websites are a LOT cheaper than they look because

we (meaning Americans, in this instance) don't have to pay the VAT on things shippped here, but the vat has to be included in the price shown.

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Response to DonCoquixote (Original post)

Sat Jan 12, 2013, 09:30 PM

9. starts original manufacture

A value-added tax (VAT) is a fee that is assessed against businesses by a government at various points in the production of goods or services—usually any time a product is resold or value is added to it. For tax purposes, value is added whenever the value of a product increases as a result of the application of a company's factors of production, such as labor and equipment. VAT must be paid by every company that handles a product during its transition from raw materials to finished goods. For example, tax is charged when a manufacturer sells to a wholesaler and again when a wholesaler sells to a retailer.

With VAT, the taxable amount is based on the value added at each stage of the process of producing goods and bringing them to market. As an example, say that a company that makes socks buys cotton yarn for $1,000; adds $500 to its value in terms of labor, depreciation of knitting machines, and profits; then sells the completed socks for $1,500. VAT would be calculated as a percentage of the $500 value added by turning cotton yarn into socks. Of course, the sock company would also get credit for the amount of VAT it paid on the purchase of inputs, like cotton yarn.

In general, the total VAT accrued during the production of goods is reflected in the price of items sold to final consumers, because each reseller along the way usually passes along its VAT costs. In this way, VAT is somewhat similar to a national sales tax, and the two forms of taxation are often compared by governments. Experts claim that VAT entails higher administrative costs but is easier to enforce than a national sales tax.

The concept of VAT was first adopted by France in 1954. By 2000, it was used by Canada and 40 other industrialized countries. In most cases, the percentage of tax charged varies based on the necessity of the particular product, so the tax on food would generally be less than the tax on luxury items like boats. In recent years, VAT has been proposed for use in the United States as a way to simplify business and personal income tax laws. Proponents claim that VAT would replace other forms of taxation and reduce the costs of tax compliance. In fact, some people say that adopting VAT would eliminate tax returns for individuals and make the Internal Revenue Service obsolete. On the other hand, opponents argue that VAT would be more complicated to implement than other tax-reform options, such as a national sales tax. They also worry that it would increase the cost of food, medicine, and other necessities, which would hurt the poor.

Read more: http://www.answers.com/topic/value-added-tax#ixzz2HopSOlL5

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Response to DonCoquixote (Original post)

Sat Jan 12, 2013, 09:53 PM

10. The place they mix the BEER! nt

 

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Response to DonCoquixote (Original post)

Sat Jan 12, 2013, 09:53 PM

11. Vear and tear

Old Jewish joke.

Unfortunately you picked a bad example - In the UK its not applied fresh food with a short shelf life and children's clothes and shoes amongst other things. The EU is attempting, unsuccessfully, to change that.

Reasonable description here : http://en.wikipedia.org/wiki/Value_added_tax The advantage to governments is that businesses become the tax collectors for them.

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Response to DonCoquixote (Original post)

Sat Jan 12, 2013, 10:33 PM

13. OK..my main concern is

While I have no problem with the luxuries having the tax added onto them, I do not want the single mom to not afford groceries because of this...is anyone out there from a Vat country, and/or have an example of how this actually works in practice?

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Response to DonCoquixote (Reply #13)

Sat Jan 12, 2013, 11:10 PM

15. Europe is big on VAT

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Response to DonCoquixote (Reply #13)

Sat Jan 12, 2013, 11:29 PM

16. VAT is government heroin

I've been in VAT country (Germany) for decades. In most cases, it is added at all levels of production. If you're in the same business, you can sometimes get an exception, much as a resale certificate can exempt you in the USA, but often not. Some countries impose it as a non-refundable import tax, some don't. Some impose it on all necessities, such as food and clothing, some have exceptions. Germany had a "reduced" VAT tariff on some items it made sense to have them on, until the rest of the EU protested, and forced Germany to impose the full whack (now 19%) on everything, which will burden consumers and retailers alike. Many countries are now at over 20%, but they all have their quirks and exceptions. It is exempted for the most part for items exported out of the EU, but not always.

I remember when it was 12% or so, and the government just kept raising it and raising it citing the need for more revenue. They never reduce it to lower the burden on consumers (or the government types' huge tax-free pensions and perks). They only raise it. Like an addictive narcotic, government types, who have their lives paid for until they die from this money, just raise it, raise it, and continue to raise it. They don't care. It won't affect their pocketbooks ever.

In Germany, in addition to the 50% de facto income tax rate, which kicks in at around $150,000, in one major instance, they even make you pay tax your tax. The price of gas at the tank consists of the price of the fuel plus about 250% more than that in "mineral oil tax." To the sum of the fuel price plus the tax, the 19% VAT is tacked on to the total, so you pay 19% tax on the mineral oil tax. I asked a tax court judge with a doctorate if this was even legal under German law. He said, well, no, but who was going to spend a million euros on legal fees fighting it? So far, no one.

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Response to DonCoquixote (Original post)

Sat Jan 12, 2013, 11:10 PM

14. It's sales tax

Last edited Sun Feb 23, 2014, 09:45 AM - Edit history (1)

There are pros and cons.
Cons: is regressive, even more than a flat tax.

It's Kind of easy to dodge. Just like many people buy goods across state lines, a national VAT needs to be carefully designed to prevent cheating. An example a few years back was that the city of Chicago had a sales tax higher than the state. Businesses were making sales of goods (iirc the newspaper mentioned a sale of a truckload of PVC pipe) in the city but the order would ship from a warehouse in an adjacent county and thus avoid tax.


Pros: the biggest pro for the VAT tax is that it is incredibly stable in its generation of revenue. It's solidly linked to consumption which is biggest component of GDP. This means that while recessions will see a dip in tax revenue, it won't be as severe as the income tax shortfalls that occur in recessions.

It is simple and relatively easy to enforce. Tax season stress would be gone.

Subjective point: it encourages savings, which is equivalent to saying punishes spending. So if you think people need to spend less and get less debt you might like it. If you think the economy needs more spending, then you may want to avoid it.

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Response to JVS (Reply #14)

Sat Jan 12, 2013, 11:30 PM

17. I could easily imagine the border areas

Becoming nuts, as people would go into Canada and Mexico.

And while I do like the idea of taxes being linked to buying...I see too many ways the rich can game this, so that they can buy yachts, and we cannot get milk.. Again, anyone in the Vat areas, if I am wrong, show me.

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Response to DonCoquixote (Reply #17)

Sat Jan 12, 2013, 11:43 PM

18. Canada already has worse prices than us, they come here to shop.

It's not the small fry shoppers that make much of a difference. The problem is that big companies move property over borders directly an not through sales. For example if gm send engines from Detroit to their factories in Canada, there is no actual sale to tax. You can't even establish the price of the engines because they aren't on a market. This isn't necessarily evasion on their part, but how you choose to address such issues invariably influences companies to do things the cheapest way.

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Response to DonCoquixote (Reply #17)

Mon Jan 14, 2013, 09:33 AM

20. dipsydoodle did point out that countries can give classes of goods exemptions

such as uncooked food, in the UK (so that includes milk). With a yacht, it would, I suppose, depend where in the world it is. A sensible country would have a rule saying that if you sail your yacht in from another country (eg where it was built), and then permanently berth it in your country, you have imported it, and it is thus subject to import VAT.

dipsydoodle and I both live in the UK.

If you have open borders, then, like any sales tax, people will start buying goods in the area with the lowest VAT/sales tax. If you reserve the right to search vehicles when they cross borders, you can say there is a limit of the value of goods that can come in before they are taxed.

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Response to DonCoquixote (Original post)

Mon Jan 14, 2013, 10:15 AM

21. It is used in countries where tax evasion is a national sport since it can be collected.

As tax evasion increases in the US, we are likely to go to a VAT.

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