VAT and sales tax

[..]

IMO avatar CaptainMidnight made a couple of good points in the other thread and he raised the topic of a VAT ...

Originally Posted by CaptainMidnight

I believe that within the next couple of years we'll see serious proposals for a VAT.

so my questions... why are americans so much against a VAT?

and if a VAT comes in the US, will the sales taxes be abolished? or will it be VAT plus sales taxes?

[Mazomaniac]

Originally Posted by ..

why are americans so much against a VAT?

One reason is that the VAT (at least as it works in Europe) shifts the burden of tax accounting and payment from the single company that sells the product to the end user to all the companies involved in the supply chain. This grossly increases the amount of tax accounting done by manufacturers and other biz-to-biz sellers and in many cases requires that these businesses pay VAT due to the government before they actually receive payment from their customers. Under our current system manufacturers and wholesalers are generally immune to any sort of sales tax payment or accounting. Under a VAT they would have just as much or even more burden for accounting and paying the tax as a retailer does under our current system.

I do business both here in the US and in Europe and have to live with both systems. The EU VAT system is a complete pain-in-the-ass when it comes to paperwork and pre-payment of VAT on certain transactions. However, it's nearly impossible to cheat in a VAT system. LOTS of companies and individuals in the US cheat on their sales and use tax payments. It's very easy to do and is becoming more and more of an issue with the increasing inter-state sales done over the internet. One advantage/disadvantage of the VAT (depending on which side of the transaction you're on) is that you can't avoid the tax just by buying something mail order. My personal opinion is that VAT is the fairer system even given the burden it places on businesses up the supply chain.

Cheers,
Mazo.

[oden]

My fear would be that it is an add on and not a replacement for income tax. It's funny how even temporary taxes never seem to go away.

[Rudyard K]

Originally Posted by ..

so my questions... why are americans so much against a VAT?

and if a VAT comes in the US, will the sales taxes be abolished? or will it be VAT plus sales taxes?

I don't think the VA portion of the VAT has as much to do with the oppostion as the T portion of the VAT. Folks are just against a tax...any tax.

I have no experience with the VAT, so can't really speak to its good and bad points. But I think that generally, most folks are just frustrated with the layering effects of taxes. Income taxes, property taxes, sales taxes, use taxes, social security taxes, medicare taxes, permits and fees (which are really just a use tax), estate taxes, etc. Now we want to throw on another layer.

I have long argued that Texas penalizes it citizens by supporting its gov primarily through sales taxes (which are not generally deductable...for individuals anyway...from federal income taxes) rather than a state income tax (which would be dedcutable). But the argument always goes in the direction that if we give the state an income tax...we will just end up with both. And frankly, I am unarmed to argue against that point.

So, I think the main argument centers on "no new taxes" rather than the type of tax.

[Texas Contrarian]

Originally Posted by ..

... why are americans so much against a VAT?

I think the main reason is that it's a very regressive tax. The burden falls disproportionately on middle class consumers. Obviously, politicians love to tell you that they only want to raise taxes on the "rich."

It's also a "hidden tax" in that it's simply built into the price of a product. Unlike the sales tax with which we're familiar, the VAT would not be added on at the register for everyone to see.

Many also oppose it because administrative costs would be fairly high and it would produce, to a fairly significant degree, what is referred to as "deadweight loss."

Originally Posted by ..

...and if a VAT comes in the US, will the sales taxes be abolished? or will it be VAT plus sales taxes?

The VAT would be a federal tax, so state sales taxes would remain.

Originally Posted by oden

My fear would be that it is an add on and not a replacement for income tax.

That certainly would be the case. Government simply spends way too much money to suggest otherwise.

VAT revenue estimates are all over the place, but the case I'm most familiar with is France. Their VAT rate is 19.6% (5.5% on certain things such as food, as I recall) and it raises about 7% of GDP. In addition, France imposes very high income taxes on the middle class (not just the rich). For instance, a French worker pulling down a modest income of around $40K is already in the 30% tax bracket. Of course, France spends a much higher percentage of GDP than we do.

You begin to see the scale of the problem when you consider that even a VAT with France's rates might not eliminate our budget deficit, especially since the picture will start looking much worse in the coming years when a rapidly-growing number of baby boomers become eligible for Social Security and Medicare benefits.

One other interesting note: Larry Summers said years ago that liberals oppose the VAT because it's regressive, and conservatives because it's a big money-raiser -- but that it will gain support when it begins to dawn on liberals that it's a big money-raiser and on conservatives that it's regressive!

[WTF]

Originally Posted by CaptainMidnight

One other interesting note: Larry Summers said years ago that liberals oppose the VAT because it's regressive, and conservatives because it's a big money-raiser -- but that it will gain support when it begins to dawn on liberals that it's a big money-raiser and on conservatives that it's regressive!

LOL...now that is funny, sad and true but funny

[WTF]

Originally Posted by Rudyard K

I have long argued that Texas penalizes it citizens by supporting its gov primarily through sales taxes (which are not generally deductable...for individuals anyway...from federal income taxes) rather than a state income tax (which would be dedcutable). But the argument always goes in the direction that if we give the state an income tax...we will just end up with both. And frankly, I am unarmed to argue against that point.

.

While at one time that was true, I think Kay Baily got it to where if you can deduct sales tax from your Fed bill. Not worth the trouble for most, I think.

[discreetgent]

Sales tax was once deductible as was interest on many things. I think the 1986 tax code overhaul eliminated both of those with the exception of home mortgage interest. Pretty sure that is where things are today.

[WTF]

http://www.mysanantonio.com/opinion/editorials/Make_Texas_sales_tax_deduction _permanent.html
Americans in every state pay state and local taxes. Some pay them through income taxes. Others pay them in the form of sales taxes. Either way, they deserve to be treated the same when it comes to their deductibility from federal tax filings.
That was largely the case until 1986, when the sales tax deduction was eliminated. The loss of the exemption meant taxpayers in Texas and other states who paid sales taxes were essentially doubly taxed while those who paid state income taxes retained their deductions.
That inequity persisted until 2004, when Sen. Kay Bailey Hutchison, R-Texas, and Rep. Kevin Brady, R-The Woodlands, were able to pass a two-year reinstatement of the state and local sales tax deduction. Two years later, they had to push another temporary extension. Then another.
Last year, a spokesman for Hutchison's office estimated the deduction would save the average Texas tax filer $520, for a total of $1.2 billion annually. Those are federal taxes Texans would have to pay only because they pay a state sales tax rather than send a tax return to Austin.
New legislation co-sponsored by Hutchison and Senate Majority Leader Harry Reid of Nevada — another sales tax state — would make permanent the deductibility of all state and local taxes, irrespective of their collection method. The measure is an amendment to the fiscal 2010 budget resolution

[atlcomedy]

I won't try to address is a VAT (or "Fair Tax"), etc. better or worse than the current system, but just explain why, pragmatically, it won't happen: old people!

You have a whole generation-plus of Americans who have been taxed primarily on their income. What they have saved (already taxed once) will be taxed again on consumption under a VAT or similar plan. They won't stand for it. Oh, did I mention there are a lot of them & they have a pretty well-organized lobby?

[WTF]

Originally Posted by atlcomedy

I won't try to address is a VAT (or "Fair Tax"), etc. better or worse than the current system, but just explain why, pragmatically, it won't happen: old people!

You have a whole generation-plus of Americans who have been taxed primarily on their income. What they have saved (already taxed once) will be taxed again on consumption under a VAT or similar plan. They won't stand for it. Oh, did I mention there are a lot of them & they have a pretty well-organized lobby?

Fuc those old bastards! haven't you heard....Obamacare got Death panels lined up waiting on their old ass's.

Freaking old SOB's design a system where they pay into SS when folks were dying at 65 and now they wanna go and live to a 100 and have us pay for them on that same old system!

Their SS surplus allowed the government to write IOU's all over the place for things like Defense spending instead of paying for wars as they occured. Now they want to blame everything on a bunch of Mexicans

[Guest050715-1]

Originally Posted by WTF

................... Now they want to blame everything on a bunch of Mexicans

You mean it’s not the Mexican’s fault? Lol

The main reason I am against a VAT or sales tax, other than they would be an add on tax not an in lieu of tax as others have stated, is that it taxes the poor disproportionately. For one, as I understand our current tax system, the poor don’t really pay income taxes. In fact they get an unearned income tax credit. Under a VAT or a national sales tax, they would be paying taxes just like the rest of us. And two, most middle class and above individuals don’t spend their entire paychecks because money is siphoned off in 401k and other investments. And that money doesn’t make it into the VAT or sales tax system. Yes the rich will pay more because they spend more, but the won’t pay the same pro rata share as the poor and lover middle class.

[Laurentius]

Well, I just plain don't like taxes. But I wouldn't want a VAT because it would simply be yet another tax while the current taxes continued unabated. I've had enough taxes. Please! Please! No mas! I already work until May every year for the Feds, without regard to the 13th Amendment which they conveniently ignore.

On the plus side, a VAT tax could capture consumption by people in the underground economy who escape income taxes; plus might bias people more toward saving than spending.

But even so ... no way. No VAT. No more taxes -- I pay enough. LOL

[atlcomedy]

Originally Posted by Laurentius

plus might bias people more toward saving than spending.

How's that a good thing? As a business owner, I don't want people saving. Spend, Spend, Spend!!! Act like WTF on holiday in Tijuana with fresh script of Vitamin V

I don't care if you are 85 before you can retire....SPEND!!!!

[Ansley]

Originally Posted by atlcomedy

How's that a good thing? As a business owner, I don't want people saving. Spend, Spend, Spend!!! Act like WTF on holiday in Tijuana with fresh script of Vitamin V

I don't care if you are 85 before you can retire....SPEND!!!!

Well aren't you in a great mood. Pretty soon we'll see you using Becky's trampoline.

Sorry for the interruption.