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Value Added Tax; (i.e. VAT sales tax method)

I'm Supposn

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Value Added Tax, (VAT) is a sales tax administration method. Of all sales tax methods I’m aware of, VAT’s the least intrusive, the most amiable to businesses and least susceptible to evasion or fraud. No other sales tax administration method is less expensive (to administer) or less invasive than VAT.

Similar to other sales tax methods, Vat authorizes qualified sellers to collect the tax on behalf of the government; BUT the sellers immediately deduct any VAT they have previously paid for their own purchases BEFORE they pass on only the difference to the government.

Unlike other tax method’s, intermediate VAT transactions contain ABSOLUTELY NO HIDDEN sales taxes imbedded within intermediate or final sales transactions.

The total explicitly itemized sales tax paid by any purchaser within any individual link of the chain of sales transactions is always the government’s entire tax revenues thus far paid within that chain. This remains true from the first to the last transaction link of the chain.
[This is particularly advantageous for a nation’s exports. Nation's do not want to increase their exports' gross prices. They all (I believe) waive any explicitly itemized taxes within their export transactions].

Because VAT has no hidden sales taxes, government’s total revenues derived from any given tax rate is less than that of other sales tax methods. It is exactly the rate explicitly specified written within the tax law.

Respectfully, Supposn
 

Goshin

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And ultimately the end consumer pays for the whole thing. The medicine just doesn't taste as bad because instead of having to add the sales tax to the price where the consumer can SEE it (at the point of sale), it is concealed within the sales price itself so the consumer just thinks "DAYUM this pair of pants is expensive!"


No thanks.
 

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And ultimately the end consumer pays for the whole thing. The medicine just doesn't taste as bad because instead of having to add the sales tax to the price where the consumer can SEE it (at the point of sale), it is concealed within the sales price itself so the consumer just thinks "DAYUM this pair of pants is expensive!"
No thanks.
Goshin, what are you writing about? The only thing in your message that was correct is that ultimately the final purchaser or consumer pays for the entire sales tax. That’s the purpose of all sales taxes.\

VAT is a sales tax that’s explicitly itemized and paid at the point of sale. Unlike conventional sales taxes, there are no imbedded hidden taxes that the purchaser is unaware of.

Within the conventional sales tax method, the sellers collect the taxes and pass the entire amount including the paper work on to the government.

Within a VAT system the sellers collect the taxes, deduct any VAT that they themselves paid in the course of their commercial transactions and pass on only the difference and all of the paper work to the government.

Sellers receive a 100% refund of what they paid in taxes and they receive it almost immediately. It is the least invasive of all sales tax methods. It is the only sales tax method that has absolutely no imbedded hidden sales taxes. It is the sales tax that’s least susceptible to tax evasion and is the least costly to administer.

Respectfully, Supposn
 

phattonez

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Unlike other tax method’s, intermediate VAT transactions contain ABSOLUTELY NO HIDDEN sales taxes imbedded within intermediate or final sales transactions.
How does it not? First transaction: base price + tax = new price.
Second transaction: new price + tax = new new price.

The second transaction has hidden the tax from the first transaction.
 

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How does it not? First transaction: base price + tax = new price.
Second transaction: new price + tax = new new price.

The second transaction has hidden the tax from the first transaction.
Phattonez, you don’t get it.

Each seller (that’s also an authorized tax Value Added Tax, (VAT) collector on behalf of the government has deducted the VAT they have themselves paid for purchasers they made in the normal course of conducting their commercial enterprise. They only pass on the difference between what they’ve collected and what they’ve paid.

For example within conventional sales tax at a 10% rate”:
. A tailor purchased $1.50 for thread; $50 for cloth, $3.00 for other materials, and expenses for equipment estimated at $12 that has all been allocated to this order for a garment to be sold for $200.

The explicitly itemized sales tax for the sale of the garment is 10% of $200 or $20 sales tax. The government’s total revenue from this chain of transactions was 0.150 + 5.000 + o.300 + o.120 + 20.000 = $25.57 .

Within a VAT system, each seller deducted the amounts of VAT they paid in the course of their business and passed on only the difference to the government. In this example the tailor would have retained $5.57 and passed on only $14.43 to the government. The government will have collected the remainder from the other sellers within the chain of sales transactions. Government’s total revenue from this chain of transactions would be $20.

VAT has absolutely no imbedded sales taxes hidden within any link of a transaction chain.

Respectfully, Supposn
 

phattonez

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Doesn't that assume that the sellers won't raise the price in response to the tax?
 

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Doesn't that assume that the sellers won't raise the price in response to the tax?
Phattonez, the government doesn’t give a damn what price a commercial entity charges.

In order to sell anything the commercial entity must apply for and be granted the right to act as a sales tax collector on behalf of the government. The authorized sales tax collector must collect the
sales tax in addition to what they collected as payment for the sales transaction. You charge more or less, then you collect more or less on behalf of the government.

For example in NY Citry you’re required to collect a sales tax that exceeds 8% for NY city’s plus NY state’s sales taxes. The state authorizes your commercial entity to collect that tax on the government’s behalf. They can and sometimes will audit a commercial entitie’s books.

If the compny doesn’t itemize the tax as an explicit item within the sales transaction, the vendersthemselves will be forced to pay the taxes. If the company overcharges for taxes that’s frud. If they undercharge, that’s tax evasion.

You have never purchased anything or have conducted a business within a state that levies a sales tax?

Respectfully, Supposn
 

imagep

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Value Added Tax, (VAT) is a sales tax administration method. Of all sales tax methods I’m aware of, VAT’s the least intrusive, the most amiable to businesses and least susceptible to evasion or fraud. No other sales tax administration method is less expensive (to administer) or less invasive than VAT.

Similar to other sales tax methods, Vat authorizes qualified sellers to collect the tax on behalf of the government; BUT the sellers immediately deduct any VAT they have previously paid for their own purchases BEFORE they pass on only the difference to the government.

Unlike other tax method’s, intermediate VAT transactions contain ABSOLUTELY NO HIDDEN sales taxes imbedded within intermediate or final sales transactions.

The total explicitly itemized sales tax paid by any purchaser within any individual link of the chain of sales transactions is always the government’s entire tax revenues thus far paid within that chain. This remains true from the first to the last transaction link of the chain.
[This is particularly advantageous for a nation’s exports. Nation's do not want to increase their exports' gross prices. They all (I believe) waive any explicitly itemized taxes within their export transactions].

Because VAT has no hidden sales taxes, government’s total revenues derived from any given tax rate is less than that of other sales tax methods. It is exactly the rate explicitly specified written within the tax law.

Respectfully, Supposn
I totally disagree with every part of your post. First of all, a VAT is actually the most intrusive tax as it occurs at every level of our business cycle and requires TONS of paperwork. Honestly, it is just another form of business tax that ultimately the consumers will have to pay.

I assume that the way you describe the mechanism of deducting previous VAT taxes is possible - but really it doesnt make a lot of sense and it creates a lot of extra paperwork - and I really dont see any purpose in doing it that way. Except for the possibility that the gov is just trying to get companies to hire more accountants. The way you explain this VAT deduction thing is that each seller would have to somehow know exactly how much VAT his vendor charged him so that he would know how much he needed to submit to the gov. Whats the point of all that? It's like "OK, I now have to charge you a tax, then I get to subtract how much tax I paid from the tax that you paid when I submit your taxes and then you get credit for the taxes that you paid against taxes that you charges and now we all have to itemize every cent of taxes on every invoice.

All of that crap is just absolutly insane and accomplishes nothing. One of the purposes of a VAT tax is so that it is never directly charged to the consumer - it is embedded in the price of the item. But if we got to subtract out taxes that we pay from what we submit, then the taxes that we pay would have to be charged as a sales tax so that it is itemized. This is all very self defeating.

There are certainly advantages and disadvantages of every tax type, but the disadvantages of the VAT tax far outweigh its advantages. I really don't like any type of VAT/Sales tax because it discourages economic activity, but a simple sales tax would be a much better than a VAT. First of all, it would be impossible for the Gov to track the VAT at every business and every level of production in America - compare this to only having to collect sales taxes at retailers (I once read that our top 100 retail and service companies in the country made something like 70% of our end consumer sales - the the gov could literally only have to watchdog 100 or so companies and they would have a lower cheat rate than what we do now with income taxes). Another issue I have with the VAT is that it is hidden while a sales tax is obvious. I want our public to have to think about all that money that our government is wasting every time we make a purchase. The hidden nature of a VAT is decietful to the American public.

And lets not ignore that a VAT tax would make US goods more expensive in the US than foreign goods. Thus we would tend to buy less American and more imports. Now how is that going to do any good to our economy? And, US goods would also become more expensive in other countries - so it would be much harder, if not virtually impossible for US manufactures to be able to sell US goods in foreign markets. A VAT would be the kiss of death to manufacturing in America. The results of a simple sales tax would have just the opposit effect on manufacturing - think about it.

There is another problem with both the VAT and Sales tax. Neither are progressive. As a matter of fact they tend to be regressive. That means that if we were to try to replace income tax with a sales or vat tax, the consumer class (those of us making from the poverty level to the 99th percentile in income) would have to pay more in taxes to make up for the extremely wealthy (which I am defining as the top 1% in income). You see, once a person has achieved a middle class or at least an upper middle class life style and income, as our income increases we start to consume a smaller and smaller percent of our income until the point where for every extra dollar we make we eventually will consume no more. Since the extremely rich dont consume a very large part of their income, and since a VAT/Sales tax only taxes what we consume, the rich will pay less in taxes. Taxation is a zero sum game, what one person doesnt pay another has to. So all of a sudden the middle class gets stuck with virtually 100% of our countries tax burdon. The middle classes tax rate doubles, the middle class then has less ability to spend, less spending reduces the size of our economy, we then have fewer jobs, and big companies have fewer retail sales so big companies profits fall and thus the stock market falls, and thus rich people's wealth actually declines. Essentually, everyone is harmed by any tax directly on commerce.

Any questions?
 
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drz-400

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Doesn't that assume that the sellers won't raise the price in response to the tax?
It depends upon whether supply or demand for each particular market is less elastic. It doesn't matter who the tax is levied on in the end, whichever is less elastic ends up paying more of the tax, but both end up paying at least some part of it.
 

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ImageP, I cannot reply with a single response to your message; it deals with too many topics. You do not accept my contention of VAT’s superiority to other methods of general sales taxes? You do not accept the economic benefits of taxing consumption rather than taxing income? You're concerned about our global trade policies?

[There are some degrees of relationships between all of these topics but they are at least worthy of discussion within their own individual messages. I’m of the opinion that they’re worthy of their own discussion threads].

Concerning USA’s trade policy, I posted a topic entitled [“Trade deficits are always detrimental to the GDP” on May 15, 2010]; and another entitled [“Buffett’s concept; an economic stimulus at no expense” that was posted on November 20, 2009, or you could google “ wikipedia, import certificates “.

Respectfully, Supposn
 

imagep

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ImageP, I cannot reply with a single response to your message; it deals with too many topics. You do not accept my contention of VAT’s superiority to other methods of general sales taxes? You do not accept the economic benefits of taxing consumption rather than taxing income? You're concerned about our global trade policies?

[There are some degrees of relationships between all of these topics but they are at least worthy of discussion within their own individual messages. I’m of the opinion that they’re worthy of their own discussion threads].



Concerning USA’s trade policy, I posted a topic entitled [“Trade deficits are always detrimental to the GDP” on May 15, 2010]; and another entitled [“Buffett’s concept; an economic stimulus at no expense” that was posted on November 20, 2009, or you could google “ wikipedia, import certificates “.

Respectfully, Supposn
Sure, I agree that each of these topics is worthy of its own discussion. Sorry that I went on the offensive a little about the VAT tax, but I have had so many people, on the left and the right, telling me how a VAT would be such a good thing, but they have never been able to give many any specific reasons that a VAT is better than any other form of taxes.

Personally i do agree that there is a specific hierarchy of tax types ranging from least harmful to our economy and well being to the most harmful. I have a feeling that we both agree that income tax (as in tax on working a job) is the most harmful, but I dont agree that the VAT is the least harmful by any means.
 

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ImageP, with regard to the economic benefits of taxing consumption rather than income taxes; there’s certainly an economic benefit to increasing USA’s rates of saving and investment.

Actual "investment" (as the word is used by economists, differs from transfers of wealth such as bank deposits or purchasing stocks, bonds and real-estate. Investment only occurs after resources, (including wealth) have been spent or used to cause the production of goods and service products that are then in turn invested for the production of more products.

When the wealth and resources are merely spent without investing, that’s only consumption. I’ve just posted a thread entitled “Fair tax; taxing consumption”.

Respectfully, Supposn
 

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ImageP, there’s no point to our discussing VAT’s superiority to other methods of general sales taxes if you do not accept the economic benefits of taxing consumption rather than taxing income.

Income taxes tax income without regard to how it’s spent. Consumption taxes are entirely, (100%) refunded for goods and service products purchased for the purpose of producing additional products; (e.g. we want to encourage the purchase and sowing of seeds to produce future crops). Businesses much sooner receive VAT rather than ordinary sales tax refunds. Cash flow is among small businesses’ major difficulties.
Unlike our present system of income taxes, there are few exceptions to a general sales tax. It’s less feasible to grant tax considerations for lower income earners within a general sales tax of any kind. Such concessions are more feasibly granted outside of the consumption tax system itself. I certainly agree that consumption taxes by their nature are regressive, (thus the need for other compensating concessions to lower income earners).

Despite all of the lip service and efforts to modify our income tax systems, they become more rather than less inequitable and thus they evolve to be more rather than less regressive.
[Progressive income tax rates’ purpose was to grant greater tax considerations for lower income earners. Instead it’s been the underlying inequity that justifies additional regulatory inequities to be continuously added to our complex income tax systems].

There are more equitable methods that would actually grant lower income earners greater tax considerations. Our present income tax systems are infested with special strokes for special folks. We are too greatly dependent upon income taxes, our overwhelmingly greatest federal revenue source. To the extent that we can shift portions of our revenue sources from income to consumption taxes, it would better enable us to reform the remaining income tax system.

Among VAT’s other superior attributes, governments “actual” full tax rate is fully apparent within all transactions. Unlike other taxing methods, (including income taxing), it’s impossible to conceal government’s full total aggregate VAT rate. I do not believe that it is economically or politically feasible to replace all income tax revenue with a consumption tax. I consider Vat’s inability to imbed and conceal government’s total sales tax revenue at any link within a chain of transactions as a very desirable attribute.

Respectfully, Supposn
 

imagep

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ImageP, there’s no point to our discussing VAT’s superiority to other methods of general sales taxes if you do not accept the economic benefits of taxing consumption rather than taxing income.
Respectfully, Supposn
I actually agree that a straightforward sales tax is superior to our tax on working (what we typically call "income tax"). Tax on work is the most evil type of tax. Working is good, why would we want to penalize people for working?

However I do see our work tax as being something different than an income tax. Income tax by its very name indicates that one would have to pay taxes on all ones income. However income which is derived by not working (investements) is exempt from income tax and is taxed at the lower rate which we call "capital gains". Why in the world do we tax people who work real jobs at a rate higher than we tax profits made from PASSIVE investments? Why does Warren Buffet pay a smaller percent of his income as taxes than ANY of his employees? That is totally ludicris.

Of course we all know the real reason - its because powerful people make our tax code, powerful people tend to be powerful because they are rich, rich people tend to own lots of passive investments - so the entire system is a scam to benefit the rich. People who self identify themselves as conservatives buy the scam hook line and sinker, even those who are harmed by it.
 

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........ (investements) is exempt from income tax and is taxed at the lower rate which we call "capital gains". Why in the world do we tax people who work real jobs at a rate higher than we tax profits made from PASSIVE investments? Why does Warren Buffet pay a smaller percent of his income as taxes than ANY of his employees?
ImageP, I’ve just posted the topic “The capital gains tax discount is unjustified”.
I’m in principle agreement with your message. I believe that Warren Buffett is similarly “on the record” in agreement with you.

Respectfully, Supposn
 

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However I do see our work tax as being something different than an income tax. Income tax by its very name indicates that one would have to pay taxes on all ones income. However income which is derived by not working (investements) is exempt from income tax and is taxed at the lower rate which we call "capital gains". Why in the world do we tax people who work real jobs at a rate higher than we tax profits made from PASSIVE investments? Why does Warren Buffet pay a smaller percent of his income as taxes than ANY of his employees? That is totally ludicris.

Of course we all know the real reason - its because powerful people make our tax code, powerful people tend to be powerful because they are rich, rich people tend to own lots of passive investments - so the entire system is a scam to benefit the rich. People who self identify themselves as conservatives buy the scam hook line and sinker, even those who are harmed by it.
We shouldn't tax capital gains at all. And you completely mischaracterize investment. We want investment, it is a good thing. It gives good companies the opportunity to expand and we all benefit by it (more production yields lower prices).
 

imagep

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We shouldn't tax capital gains at all. And you completely mischaracterize investment. We want investment, it is a good thing. It gives good companies the opportunity to expand and we all benefit by it (more production yields lower prices).
OK then. Please explain why it is ok to tax income that we actually have to earn but it is not ok to tax income that fat rich people get for sitting on their but while the stock market investments that they inherited (as in DID NOT EARN) are not taxed.

At this particular spot in time, we actually dont need any more investment. We have manufacturing that is only operating at 60% capacity. We have empty houses and empty commercial properties througout the country. In my own business, I have equipment that used to be used 8+ hours a day that is now only being used for a couple hours a day (due to lack of product demand due to the lack of consumption which is the root cause of our recession). More investment is absolutely not needed. What we need is for investors to start spending (consumption). Without an increase in consumption the we will not have an increase in manufacturing and services demand and without demand we have no need for further investment.
 

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And ultimately the end consumer pays for the whole thing. The medicine just doesn't taste as bad because instead of having to add the sales tax to the price where the consumer can SEE it (at the point of sale), it is concealed within the sales price itself so the consumer just thinks "DAYUM this pair of pants is expensive!"


No thanks.
Why no thanks? Then you would only buy what you really need.

Instead, Americans buy stuff they don't need, with money they don't have, to impress people they don't even like.
 

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OK then. Please explain why it is ok to tax income that we actually have to earn but it is not ok to tax income that fat rich people get for sitting on their but while the stock market investments that they inherited (as in DID NOT EARN) are not taxed.

At this particular spot in time, we actually dont need any more investment. We have manufacturing that is only operating at 60% capacity. We have empty houses and empty commercial properties througout the country. In my own business, I have equipment that used to be used 8+ hours a day that is now only being used for a couple hours a day (due to lack of product demand due to the lack of consumption which is the root cause of our recession). More investment is absolutely not needed. What we need is for investors to start spending (consumption). Without an increase in consumption the we will not have an increase in manufacturing and services demand and without demand we have no need for further investment.
But they are earned. You take a risk when you put that money up to invest. That investment should be applauded if successful, not demonized. It is a source of capital for more production, which is a good thing.

And besides, I never said that income taxes should be taxed. Don't assume things. I think that neither income nor capital gains should be taxed.
 
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phattonez

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Instead, Americans buy stuff they don't need, with money they don't have, to impress people they don't even like.
And these people go bankrupt as they should. Oh whoops, I guess we don't allow failure in this country anymore.
 

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We shouldn't tax capital gains at all.QUOTE]

Phattonez, I’m opposed to special strokes for special folks. I’m an advocate of free enterprise. Entrepreneurs should determine their investments by considering the open market’s rewards and penalties.

I have little patience with those who describe themselves as “conservatives” and only seek special tax consideration for THEIR particular source of income.

Refer to my topic thread “the capital gains tax discount is unjustified”.

Respectfully, Supposn
 

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We shouldn't tax capital gains at all. And you completely mischaracterize investment. We want investment, it is a good thing. It gives good companies the opportunity to expand and we all benefit by it (more production yields lower prices).
Phattonez, you don’t seem to understand or ignore the difference between “transfers of wealth” and investments.
Refer to message #12 of this topic thread.

Only a small portion of incomes described as capital gains are due to "investments" as that word is used by economists. The majority of what the IRS considers as capital gain profits are due to transfers of wealth that do nothing to increase our nations GDP.

Respectfully, Supposn
 

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A value-added tax will:

Lower our massive deficit
Tax consumption rather than taxing even more of people's income
Will help cover giant increases in government spending
Encourages savings and investing which leads to a natural job growth, rather than one which is forced by government bills
Incentive for individuals to work harder
Hurts people who make money "illegally" because they will still be taxed when they spend.

Sounds like a great idea to me :)
 

jking948

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A value-added tax will:

Lower our massive deficit
Tax consumption rather than taxing even more of people's income
Will help cover giant increases in government spending
Encourages savings and investing which leads to a natural job growth, rather than one which is forced by government bills
Incentive for individuals to work harder
Hurts people who make money "illegally" because they will still be taxed when they spend.

Sounds like a great idea to me :)
let me also just say as well. In order for us to shrink our deficit we will need a higher income tax on the wealthy(in my mind) at least for a little bit of time. After the deficit is reduced both the VAT and the income tax can be lowered but set to maintain a balanced budget.
 

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VAT is a fiasco - it's a hidden tax of middle men. The UK started at something like 5% now it's 17.5% with some things at 5% and some exempt. The answer isn't additional tax, it's fiscal conservatism --- so CUTS to additional spending and entitlements, and the institution of a flat tax where ALL have to pay their share - not just 50% of the population.

Taxing the wealthy, additional VAT and more entitlements... if you want that go to Europe. They have that already.
 
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