Taxes: Are You Ready for VAT?

Posted in News
Tue, Dec 2 - 12:52 pm EDT | 6 years ago by
Comments: 14
Share This Post:
  • Facebook
  • StumbleUpon
  • Tumblr
  • Reddit
  • Twitter

In Europe, many governments boost their revenue through the value-added tax (VAT). It is also used Australia and Latin America. The VAT is a tax that works by collecting revenues at every stage of product production. So, taxes would be charged to manufacturers when they buy materials, and on down the line as the product is sold and resold. It’s basically sales tax, but it’s collected at stages previous to reaching the end-user. Many economists consider the most efficient way for a government to raise revenue. For consumers here in the U.S., it would likely result in higher prices for consumer goods.

But something needs to be done about a deficit that seems to be growing exponentially every time a politician opens his or her mouth with a new plan to “save” the economy. And, quite frankly, the American people will probably not go for a hike to their income taxes. Just letting the Bush tax cuts for the wealthy expire isn’t going to solve the problem, either. The government has a serious revenue problem. It’s too big for an income tax to solve. The VAT may be just the thing to solve it — since it guarantees and documents that taxes are collected every step of the way. Here is what Fortune has to say about VAT:

The genius of the VAT is that, while the consumer pays it, the actual cash is mostly collected from producers before it reaches the retailer. Since the VAT is essentially a hidden charge embedded in the price of goods and services, raising the VAT doesn’t arouse nearly the uproar caused by increasing income taxes. …

[T]he VAT would be better than the other likely alternative: A higher retail sales tax. If the national sales tax were raised to, say, 20%, consumers would cheat by paying cash to avoid it, and retailers would submit because they’d sell more goods by cutting the price 20%.

VAT hasn’t really been introduced as a serious option yet. Mainly because VAT can actually act as a drag on the economy. One of the ways that VAT may create a slowdown in the economy — at least initially — is by increasing the cost of goods. Charging higher prices is a surefire way to encourage people to carefully think through their purchases and maybe spend less. Wait a minute. Maybe that would be a good thing. Consumers spending less (using mainly debt, of course) and disciplining their purchases…

At any rate, the VAT may become a reality here in the U.S. The income tax is not even close to being enough to cover the amount of spending going on — I’m not even sure how long it will be enough to cover the interest on our massive national obligations. Even seriously cutting programs won’t work. And, unfortunately, the most expensive programs are those that we now consider “essential” (Medicare, defense spending, etc.).

So VAT may be the solution. But one thing at a time. There are still Important Things to throw money at. The government hasn’t time yet to think about where that money will come from.



Digg!Submit to PFBuzz.com

Related Posts

Share This Post:
  • Facebook
  • StumbleUpon
  • Tumblr
  • Reddit
  • Twitter
  • Dave Brown

    This is just more corruption…we are corrupt here at the DEA and it is only right the the people pay while we fat cats sit back and get over paid and break the law(don’t tell anyone about that)

  • miranda

    I do wish our tax dollars were spent a little more responsibly.

  • http://www.hamroawaaz.com Rahul

    Listening to the word VAT gives me crepes. I’m far too worried about this. But sooner or later I’ve to leap in to this as well.

  • http://www.leadershipturn.com Miki

    I’ve always thought that a VAT made sense, but it’ll never get [ast the lobbiests. Of course, a good short-term fix, we can save the $12 Billion a month we’re spending on the Iraq war.

  • miranda

    Thanks Rahul and Miki. As with all things, there are mixed feelings about this. But I do like the VAT better than a lot of other tax schemes out there. Since consumption is such a huge part of our economy now, maybe that’s what we should be taxing — instead of income. Of course, if we do go with VAT, I’d like to see food excluded.

  • http://www.holidayfastcash.com John

    Value added tax is still that, though a “Tax”. This isn’t something that I really enjoy, unfortunately we have to deal with. VAT is just going to drive production out of the US even further than it is already. This is because it is going to cost even more to produce and sell a good here than it once did.

  • miranda

    It is true that taxes are a necessity. We’ve reached a point where we expect certain things from our government, and we have to pay for them. While VAT may drive some production out of the country, chances are that it could be applied to incoming products, so that the advantage of going elsewhere is limited.

  • http://www.leadershipturn.com Miki

    Thank you, Miranda. It’s nice to see someone equate revenue (taxes) with outlay (services and infrastructure).

    I live in Washington State with no state income tax, but we do have a sales tax. My area is also just across the river from Oregon, with no sales tax.

    I get very tired of hearing people brag about how they bought X in Oregon to avoid the sales tax and then go on to complain bitterly about the cost of college/condition of roads/not enough law enforcement/etc.

    It’s as if they can’t make the connection!

  • miranda

    Nice, huh? We expect a great deal, but we hate to think of how to pay for it. While there are some things that the government shouldn’t be paying for, there are definitely some items (police, garbage collection, education, infrastructure, etc.) that the government should be helping with.

  • http://www.leadershipturn.com Miki

    Out of curiosity, what DON’T you think the government shouldn’t be paying for?

  • miranda

    LOL. There are a TON of pork barrel projects out there that the federal government should not be funding. And I think we shouldn’t be paying to support other countries’ militaries (which we do). I also don’t think we should be paying subsidies to companies that are quite profitable on their own.

  • http://www.leadershipturn.com Miki

    Miranda, how could you? Take away the pork that gets the clowns, oops, I mean Congresspersons, reelected? That’s not nice. Without earmarks Uncle Ted wouldn’t have had a 40 year career and there wouldn’t be amazing tourist attractions such as the Bridge to Nowhere.

    And if we didn’t support all those other countries all the poor little mice wouldn’t have anyone to roar at…

  • http://crudeoiltrader.blogspot.com Ray

    Most industries in this country already have this, it’s called excise tax. Make’s it easy for the ignorant public blame corporations for high prices. I worked in an industry that had a 11% excise tax. Combine that with sales tax and you are at 20%. What a crappy business partner the government is.

  • http://www.yieldingwealth.com Miranda

    Interesting point, Ray.