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?