USA: Push for a VAT in addition to our Income Tax
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If we get away from those who reflexively oppose any proposal for a new tax, conservatives tend to favour taxes on consumption in preference to taxes on income, both because of its "flat rate" aspect and because savings are not taxed. And, yes, I know that the "plan" is to have both taxes on consumption and taxes on income, but the effect of a VAT is to allow lower rates of income tax than would otherwise exist. Australia's VAT (called the GST --- Goods and Services Tax) was introduced by the conservative (in Australian terms) Howard Government and used, in part, to fund cuts in income tax rates. http://www.australianpolitics.com/news/2000/00-06-29a.shtml[^]
John Carson
John Carson wrote:
both because of its "flat rate" aspect and because savings are not taxed.
I'd argue that well-off conservatives favor it because a tax on consumption allows much of what they do with their money to be defined by their accountants as not consumption. A truly flat tax doesn't have loopholes.
Jon Smith & Wesson: The original point and click interface Both democrats and republicans are playing for the same team and it's not us. - Chris Austin
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John Carson wrote:
both because of its "flat rate" aspect and because savings are not taxed.
I'd argue that well-off conservatives favor it because a tax on consumption allows much of what they do with their money to be defined by their accountants as not consumption. A truly flat tax doesn't have loopholes.
Jon Smith & Wesson: The original point and click interface Both democrats and republicans are playing for the same team and it's not us. - Chris Austin
Oakman wrote:
I'd argue that well-off conservatives favor it because a tax on consumption allows much of what they do with their money to be defined by their accountants as not consumption. A truly flat tax doesn't have loopholes.
In Australia (and, I think, most European countries), you pay the tax when you buy things, with very few exemptions (purchases for a business purpose still attract the tax, though tax paid on inputs is credited as an offset against tax liabilities on sales). Accountants don't get much say. I think it is easier for accountants to hide income than to hide consumption.
John Carson
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If we get away from those who reflexively oppose any proposal for a new tax, conservatives tend to favour taxes on consumption in preference to taxes on income, both because of its "flat rate" aspect and because savings are not taxed. And, yes, I know that the "plan" is to have both taxes on consumption and taxes on income, but the effect of a VAT is to allow lower rates of income tax than would otherwise exist. Australia's VAT (called the GST --- Goods and Services Tax) was introduced by the conservative (in Australian terms) Howard Government and used, in part, to fund cuts in income tax rates. http://www.australianpolitics.com/news/2000/00-06-29a.shtml[^]
John Carson
John, out of curiosity what effect would you speculate a 10% VAT would have on the sales of goods and services? Would you predict a short term contraction followed by growth if the VAT tax is coupled with a decrease in income taxes?
Sovereign ingredient for a happy marriage: Pay cash or do without. Interest charges not only eat up a household budget; awareness of debt eats up domestic felicity. --Lazarus Long Avoid the crowd. Do your own thinking independently. Be the chess player, not the chess piece. --Ralph Charell
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Oakman wrote:
I'd argue that well-off conservatives favor it because a tax on consumption allows much of what they do with their money to be defined by their accountants as not consumption. A truly flat tax doesn't have loopholes.
In Australia (and, I think, most European countries), you pay the tax when you buy things, with very few exemptions (purchases for a business purpose still attract the tax, though tax paid on inputs is credited as an offset against tax liabilities on sales). Accountants don't get much say. I think it is easier for accountants to hide income than to hide consumption.
John Carson
Yes John, VAT is a tax on the purchase of goods and services. For a business, this is both an input tax (things you buy) and an output tax (things you sell) with the difference being paid/refunded from the the government's Revenue and Customs & Excise service. One of the attractive bits of VAT legislation is that for government, collection of taxes is cheaper as immediate processing of VAT is done by businesses who are acting as unpaid tax collectors.
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Oakman wrote:
I'd argue that well-off conservatives favor it because a tax on consumption allows much of what they do with their money to be defined by their accountants as not consumption. A truly flat tax doesn't have loopholes.
In Australia (and, I think, most European countries), you pay the tax when you buy things, with very few exemptions (purchases for a business purpose still attract the tax, though tax paid on inputs is credited as an offset against tax liabilities on sales). Accountants don't get much say. I think it is easier for accountants to hide income than to hide consumption.
John Carson
John Carson wrote:
Accountants don't get much say
Really? And if I set up a nature conservancy and gift it with a million dollars to buy up the land around my home (garnering a nice tax-break) thus guaranteeing that I am the only one with access to the lake, or forests near my house, how much am I taxed? How much do I pay my accountant (and lawyer) who set up this dummy non-profit that happens to be headed by my nephew (who really likes fishing in that lake)? Is there the standard (in this country) exemption from tax for this non-profit when it buys goods, even if those goods are ultimately used by others? If, so, I'd say my accountant and lawyer deserve a bonus - and maybe my p.r. guy does too for having convinced people that a sales tax is a flat tax. By the way, V.A.T. is not the same as sales tax. 'Twould be interesting to see which was instituted.
Jon Smith & Wesson: The original point and click interface Both democrats and republicans are playing for the same team and it's not us. - Chris Austin
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John, out of curiosity what effect would you speculate a 10% VAT would have on the sales of goods and services? Would you predict a short term contraction followed by growth if the VAT tax is coupled with a decrease in income taxes?
Sovereign ingredient for a happy marriage: Pay cash or do without. Interest charges not only eat up a household budget; awareness of debt eats up domestic felicity. --Lazarus Long Avoid the crowd. Do your own thinking independently. Be the chess player, not the chess piece. --Ralph Charell
Chris Austin wrote:
John, out of curiosity what effect would you speculate a 10% VAT would have on the sales of goods and services? Would you predict a short term contraction followed by growth if the VAT tax is coupled with a decrease in income taxes?
It would depend on a number of things, but yes, there would be a tendency for a short term depressive effect. If memory serves, there was a minor one when Australia introduced its GST. Things picked up subsequently.
John Carson
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John Carson wrote:
Accountants don't get much say
Really? And if I set up a nature conservancy and gift it with a million dollars to buy up the land around my home (garnering a nice tax-break) thus guaranteeing that I am the only one with access to the lake, or forests near my house, how much am I taxed? How much do I pay my accountant (and lawyer) who set up this dummy non-profit that happens to be headed by my nephew (who really likes fishing in that lake)? Is there the standard (in this country) exemption from tax for this non-profit when it buys goods, even if those goods are ultimately used by others? If, so, I'd say my accountant and lawyer deserve a bonus - and maybe my p.r. guy does too for having convinced people that a sales tax is a flat tax. By the way, V.A.T. is not the same as sales tax. 'Twould be interesting to see which was instituted.
Jon Smith & Wesson: The original point and click interface Both democrats and republicans are playing for the same team and it's not us. - Chris Austin
Oakman wrote:
Really? And if I set up a nature conservancy and gift it with a million dollars to buy up the land around my home (garnering a nice tax-break) thus guaranteeing that I am the only one with access to the lake, or forests near my house, how much am I taxed? How much do I pay my accountant (and lawyer) who set up this dummy non-profit that happens to be headed by my nephew (who really likes fishing in that lake)? Is there the standard (in this country) exemption from tax for this non-profit when it buys goods, even if those goods are ultimately used by others?
No, non-profits pay GST on their puchases, the same as everyone else.
Oakman wrote:
By the way, V.A.T. is not the same as sales tax.
Australia's "Goods and Services Tax" is a VAT, not a sales tax.
John Carson
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Oakman wrote:
Really? And if I set up a nature conservancy and gift it with a million dollars to buy up the land around my home (garnering a nice tax-break) thus guaranteeing that I am the only one with access to the lake, or forests near my house, how much am I taxed? How much do I pay my accountant (and lawyer) who set up this dummy non-profit that happens to be headed by my nephew (who really likes fishing in that lake)? Is there the standard (in this country) exemption from tax for this non-profit when it buys goods, even if those goods are ultimately used by others?
No, non-profits pay GST on their puchases, the same as everyone else.
Oakman wrote:
By the way, V.A.T. is not the same as sales tax.
Australia's "Goods and Services Tax" is a VAT, not a sales tax.
John Carson
John Carson wrote:
No, non-profits pay GST on their puchases, the same as everyone else.
In Australia, perhaps. However, I'd tend to bet that in the U.S. 501-C-3's would be exempt from this tax as much as any other. I suppose that would be an argument in favor of a VAT where the government repeatedly taxes the same product or process as opposed to a sales tax which is levied only on the final consumer. Tell me, do each of your territories also tax each sale? In the U.S. the government might go for a VAT that was not levied on the final transaction simply because both cities and states have already imposed a salestax, amounting to anything from 3% to 10% of the price depending on location. (There are probably a couple of states at 0%, too.) anecdotal: A few years ago South Carolina raised its sales tax from 5% to 6% but realising that this placed an additional burden on senior citizens living on a fixed income, they provided that only 5% would be charged - if the purchaser was 85 years old. Something tells me that most folks 85 don't go shopping for themselves - I wonder if the legislature took that into consideration when they decided to be generous.
Jon Smith & Wesson: The original point and click interface Both democrats and republicans are playing for the same team and it's not us. - Chris Austin
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Chris Austin wrote:
John, out of curiosity what effect would you speculate a 10% VAT would have on the sales of goods and services? Would you predict a short term contraction followed by growth if the VAT tax is coupled with a decrease in income taxes?
It would depend on a number of things, but yes, there would be a tendency for a short term depressive effect. If memory serves, there was a minor one when Australia introduced its GST. Things picked up subsequently.
John Carson
John Carson wrote:
Things picked up subsequently.
As they might have anyway. Any economic theories with math about the effects of VAT?
Jon Smith & Wesson: The original point and click interface Both democrats and republicans are playing for the same team and it's not us. - Chris Austin
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John Carson wrote:
No, non-profits pay GST on their puchases, the same as everyone else.
In Australia, perhaps. However, I'd tend to bet that in the U.S. 501-C-3's would be exempt from this tax as much as any other. I suppose that would be an argument in favor of a VAT where the government repeatedly taxes the same product or process as opposed to a sales tax which is levied only on the final consumer. Tell me, do each of your territories also tax each sale? In the U.S. the government might go for a VAT that was not levied on the final transaction simply because both cities and states have already imposed a salestax, amounting to anything from 3% to 10% of the price depending on location. (There are probably a couple of states at 0%, too.) anecdotal: A few years ago South Carolina raised its sales tax from 5% to 6% but realising that this placed an additional burden on senior citizens living on a fixed income, they provided that only 5% would be charged - if the purchaser was 85 years old. Something tells me that most folks 85 don't go shopping for themselves - I wonder if the legislature took that into consideration when they decided to be generous.
Jon Smith & Wesson: The original point and click interface Both democrats and republicans are playing for the same team and it's not us. - Chris Austin
Oakman wrote:
Tell me, do each of your territories also tax each sale?
No. There is no state sales tax.
John Carson
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John Carson wrote:
Things picked up subsequently.
As they might have anyway. Any economic theories with math about the effects of VAT?
Jon Smith & Wesson: The original point and click interface Both democrats and republicans are playing for the same team and it's not us. - Chris Austin
Oakman wrote:
As they might have anyway.
Sure.
Oakman wrote:
Any economic theories with math about the effects of VAT?
Libararies full of the stuff.
John Carson
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John Carson wrote:
Things picked up subsequently.
As they might have anyway. Any economic theories with math about the effects of VAT?
Jon Smith & Wesson: The original point and click interface Both democrats and republicans are playing for the same team and it's not us. - Chris Austin
Jon, VAT - you may find some of these interesting to read ... Small Business Resource - What is VAT[^] VAT & Inflation[^] VAT Missing Trader Fraud[^] A Tax-Based Test for Nominal Rigidities[^] HM Revenue and Customs & Excise[^]
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Jon, VAT - you may find some of these interesting to read ... Small Business Resource - What is VAT[^] VAT & Inflation[^] VAT Missing Trader Fraud[^] A Tax-Based Test for Nominal Rigidities[^] HM Revenue and Customs & Excise[^]
Just sounds like another confusing way to tax or in other words BS.
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Just sounds like another confusing way to tax or in other words BS.
If tax was simple and easy to understand, accountants would be surplus to requirements. And even our Chancellor of the Exchequor wouldn't need tax accountants to sort his taxes out. (The Chancellor of the Exchequor is the position in Government who is responsible for setting tax legislation and thus collecting tax revenues in the UK)
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Jon, VAT - you may find some of these interesting to read ... Small Business Resource - What is VAT[^] VAT & Inflation[^] VAT Missing Trader Fraud[^] A Tax-Based Test for Nominal Rigidities[^] HM Revenue and Customs & Excise[^]
Interesting. It appears that many economists have decided that VAT is not inflationary - IF it replaces other taxes 1:1. So my question to them would be: how often does a government change its tax code with an eye to not bringing in any more money? The "Tax-Based Test..." points out something I've run across before: Keynes and neoKeynesians rely greatly on a very rigid wage structure when prices go up because of VAT or sales tax, energy costs, the devaluing of the dollar, etc. Yet, back in the 70's, Nixon imposed a wage/price freeze because he and his advisors realised that both marched upwards pretty much in lock step. (He'd just devalued the dollar by going off the gold standard.) Ultimately, I suspect that a VAT in the US will be a way of obama raising taxes by a fair amount without raising personal income taxes, and that it will combine with his devaluing of the dollar (which is already making the Chinese scream and showing up in the bond market as an increase in interest) to create an inflationary rate our economy cannot handle.
Jon Smith & Wesson: The original point and click interface Both democrats and republicans are playing for the same team and it's not us. - Chris Austin
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Interesting. It appears that many economists have decided that VAT is not inflationary - IF it replaces other taxes 1:1. So my question to them would be: how often does a government change its tax code with an eye to not bringing in any more money? The "Tax-Based Test..." points out something I've run across before: Keynes and neoKeynesians rely greatly on a very rigid wage structure when prices go up because of VAT or sales tax, energy costs, the devaluing of the dollar, etc. Yet, back in the 70's, Nixon imposed a wage/price freeze because he and his advisors realised that both marched upwards pretty much in lock step. (He'd just devalued the dollar by going off the gold standard.) Ultimately, I suspect that a VAT in the US will be a way of obama raising taxes by a fair amount without raising personal income taxes, and that it will combine with his devaluing of the dollar (which is already making the Chinese scream and showing up in the bond market as an increase in interest) to create an inflationary rate our economy cannot handle.
Jon Smith & Wesson: The original point and click interface Both democrats and republicans are playing for the same team and it's not us. - Chris Austin
As you know, Income Tax is a tax payable as the result of your earnings. Whereas VAT is a tax on what you spend. The two are not, as such, interchangeable, although some massaging probably occurs. If VAT is a direct replacement for sales tax and if the replacement doesn't take advantage of people's ignorances then it should be a fair application. However, this VAT as stated would not in itself be inflationary unless the tax as collected is not a direct 1:1 replacement but there are some problems that you in the USA would encounter - namely State taxes are in addition to any Federal inspired tax and VAT would most likely be a Federal inspired tax. As well as the "how it is applied". What I mean there is, is VAT to be applied before or after State taxes? More revenue would be generated if VAT is applied after State taxes. This is where it could become inflationary. Of course, the more sales that are made the more VAT is collected, so in times of a booming economy, the Government is laughing "all the way to the bank". Regarding VAT, in Britain, there are a number of shopping items that would be zero rated. Such as most foodstuffs and most children's clothing. However, here is a strangest thing, if, say, you are a retailer of fresh meats, you would buy in polystyrene/plastic trays and cling-film to package the meats into weights and volumes you sell to your customers. You are charged VAT by your supplier of such items yet because you sell this meat and this meat is zero rated, your internal accountancy practices must show an input VAT higher than your Output VAT thus you are entitled to a refund of that VAT you have paid. Add to that any items you sell that are VAT rated above 0% thus your Output Tax would be greater that your Input tax for such items. A payment of the difference is required. Therefore you can understand my comment in a message above where the business is acting as an unpaid tax collector. In Britain, because of the EU aspect of tax law, once VAT at the standard rate has been applied to an item, it can no longer be zero rated but can be reduced or raised.
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As you know, Income Tax is a tax payable as the result of your earnings. Whereas VAT is a tax on what you spend. The two are not, as such, interchangeable, although some massaging probably occurs. If VAT is a direct replacement for sales tax and if the replacement doesn't take advantage of people's ignorances then it should be a fair application. However, this VAT as stated would not in itself be inflationary unless the tax as collected is not a direct 1:1 replacement but there are some problems that you in the USA would encounter - namely State taxes are in addition to any Federal inspired tax and VAT would most likely be a Federal inspired tax. As well as the "how it is applied". What I mean there is, is VAT to be applied before or after State taxes? More revenue would be generated if VAT is applied after State taxes. This is where it could become inflationary. Of course, the more sales that are made the more VAT is collected, so in times of a booming economy, the Government is laughing "all the way to the bank". Regarding VAT, in Britain, there are a number of shopping items that would be zero rated. Such as most foodstuffs and most children's clothing. However, here is a strangest thing, if, say, you are a retailer of fresh meats, you would buy in polystyrene/plastic trays and cling-film to package the meats into weights and volumes you sell to your customers. You are charged VAT by your supplier of such items yet because you sell this meat and this meat is zero rated, your internal accountancy practices must show an input VAT higher than your Output VAT thus you are entitled to a refund of that VAT you have paid. Add to that any items you sell that are VAT rated above 0% thus your Output Tax would be greater that your Input tax for such items. A payment of the difference is required. Therefore you can understand my comment in a message above where the business is acting as an unpaid tax collector. In Britain, because of the EU aspect of tax law, once VAT at the standard rate has been applied to an item, it can no longer be zero rated but can be reduced or raised.
Richard A. Abbott wrote:
Whereas VAT is a tax on what you spend.
Actually it's a tax on every market transaction. Some items as they move from manufacturer to wholesaler to distributor to retailer will pay the tax at each level. By the time the customer buys it, he's paying a price that includes the two previous taxes and - since they have raised the price, he's paying a tax on those taxes. The States will be happy since the new higher prices will generate more sales tax for them.
Richard A. Abbott wrote:
so in times of a booming economy, the Government is laughing "all the way to the bank".
And, in times of busting economy, the well-off cut back on their spending while the poor have far less discretionary income.
Richard A. Abbott wrote:
Regarding VAT, in Britain, there are a number of shopping items that would be zero rated.
Once again loopholes raise their ugly heads and that tax is no longer flat nor fair.
Jon Smith & Wesson: The original point and click interface Both democrats and republicans are playing for the same team and it's not us. - Chris Austin
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Richard A. Abbott wrote:
Whereas VAT is a tax on what you spend.
Actually it's a tax on every market transaction. Some items as they move from manufacturer to wholesaler to distributor to retailer will pay the tax at each level. By the time the customer buys it, he's paying a price that includes the two previous taxes and - since they have raised the price, he's paying a tax on those taxes. The States will be happy since the new higher prices will generate more sales tax for them.
Richard A. Abbott wrote:
so in times of a booming economy, the Government is laughing "all the way to the bank".
And, in times of busting economy, the well-off cut back on their spending while the poor have far less discretionary income.
Richard A. Abbott wrote:
Regarding VAT, in Britain, there are a number of shopping items that would be zero rated.
Once again loopholes raise their ugly heads and that tax is no longer flat nor fair.
Jon Smith & Wesson: The original point and click interface Both democrats and republicans are playing for the same team and it's not us. - Chris Austin
Oakman wrote:
Actually it's a tax on every market transaction
Not exactly as applied in UK. It is a tax on those items that are NOT tax exempt. And those that are rated as zero are not tax exempt.
Oakman wrote:
Some items as they move from manufacturer to wholesaler to distributor to retailer ...
VAT don't work like that Jon. This is how it works ... Manufacturer buys in the raw goods, many are likely to attract VAT. Whatever the VAT as charged, it is an Input Tax. The manufacturer supplies the goods to his customer (wholesaler/distributor/whatever) and charges VAT on the sale price of the item. This VAT is the Output Tax. The difference between Output Tax and Input Tax is paid (or reclaimed) to the Government's Revenue collection people. The Wholesaler (or whosoever) adds their mark-up, but this mark-up is on the price of the goods that the manufacturer charges excluding any taxes. The VAT Tax paid becomes the Input Tax (remember, this Input Tax was EXACTLY the Output Tax from the manufacturer), the wholesaler then with his marked-up price then applies VAT to that marked-up price and is the Output Tax and the difference again between Output Tax and Input Tax is paid (reclaimed) from Government. And so on along the supply line until the final purchaser consumes the product. The final customer has not made any payments of Input Tax or Output Tax on any intermediary. He only pays the VAT as Output Tax to the final supplier who then sends (reclaims) difference between Input Tax and Output Tax to Government. The difference between manufacturing sales price and the price the final customer pays only reflects whatever the mark-ups are and no VAT related taxes in-between. Only VAT paid by the final customer is calculated on the final price of said item. The final customer is not paying tax upon tax upon tax, although some unscrupulous organizations might wish to charge extra to whosoever their customer is that little bit extra, thus my comment above where I made claim of "people's ignorances".
Oakman wrote:
loopholes
That which I commented about some zero rated items, those are food/children's cloths and some other items. It is written into law what is and what is not to be charged at zero % or those that are VAT exempt. So loopholes, in this respect, are not valid. But if loopholes you want, try this ... Chocolate chip biscuits ar
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Oakman wrote:
Actually it's a tax on every market transaction
Not exactly as applied in UK. It is a tax on those items that are NOT tax exempt. And those that are rated as zero are not tax exempt.
Oakman wrote:
Some items as they move from manufacturer to wholesaler to distributor to retailer ...
VAT don't work like that Jon. This is how it works ... Manufacturer buys in the raw goods, many are likely to attract VAT. Whatever the VAT as charged, it is an Input Tax. The manufacturer supplies the goods to his customer (wholesaler/distributor/whatever) and charges VAT on the sale price of the item. This VAT is the Output Tax. The difference between Output Tax and Input Tax is paid (or reclaimed) to the Government's Revenue collection people. The Wholesaler (or whosoever) adds their mark-up, but this mark-up is on the price of the goods that the manufacturer charges excluding any taxes. The VAT Tax paid becomes the Input Tax (remember, this Input Tax was EXACTLY the Output Tax from the manufacturer), the wholesaler then with his marked-up price then applies VAT to that marked-up price and is the Output Tax and the difference again between Output Tax and Input Tax is paid (reclaimed) from Government. And so on along the supply line until the final purchaser consumes the product. The final customer has not made any payments of Input Tax or Output Tax on any intermediary. He only pays the VAT as Output Tax to the final supplier who then sends (reclaims) difference between Input Tax and Output Tax to Government. The difference between manufacturing sales price and the price the final customer pays only reflects whatever the mark-ups are and no VAT related taxes in-between. Only VAT paid by the final customer is calculated on the final price of said item. The final customer is not paying tax upon tax upon tax, although some unscrupulous organizations might wish to charge extra to whosoever their customer is that little bit extra, thus my comment above where I made claim of "people's ignorances".
Oakman wrote:
loopholes
That which I commented about some zero rated items, those are food/children's cloths and some other items. It is written into law what is and what is not to be charged at zero % or those that are VAT exempt. So loopholes, in this respect, are not valid. But if loopholes you want, try this ... Chocolate chip biscuits ar
Does cane sugar, flour, and other staple goods fit under the 0% in the UK?