Blackmailed by the bankers (VAT Tax)

[Hannah Bell]

THERE IS a striking contrast in the most industrialized countries at the epicenter of the global crisis that broke out in 2007-08. The governments and their friends running the major banks are congratulating themselves on having saved the financial sector...but people's living conditions continue to deteriorate...The path...has led to an explosion in public debt.

For many years to come, this growth in public debt will be used by governments as a form of blackmail to impose social cuts and to deduct from the wages of "those at the bottom" the money needed to repay the public debt. How will this scenario play out? Direct taxes on high-income earners and companies will be reduced, while indirect taxes, such as value-added taxes (VATs), will increase.

As a percentage of disposable income, the VAT is mainly a burden on low-income households... For example, with a 20 percent VAT tax, a poor household that spends all its income just to survive pays the equivalent of a 20 percent tax on its income--whereas a well-off household, which saves 90 percent of its income and therefore only spends 10 percent of it on daily expenses, pays the equivalent of a 2 percent tax on its income.

Therefore, the richest win twice: As a percentage of their disposable income, they contribute the least amount to taxes, and with the sums they save, they can buy the government bonds that finance public debt and make profit from the interest paid by the state. Meanwhile, wage earners and pensioners are doubly penalized: their taxes increase while public services and social security benefits deteriorate.

The repayment of public debt is therefore a mechanism for transferring revenue from those at the bottom to those at the top--as well as an effective form of blackmail in order to pursue neoliberal policies benefiting those at the top.

http://socialistworker.org/2010/04/08/blackmailed-by-the-bankers

[JDPriestly]

1. The VAT is very common in European countries.

I lived in those countries. At the time, we were low income. And we liked the VAT. It was not charged on food or, if I recall correctly, children's clothing.

The VAT combined with a reduction in taxes for lower income brackets (and an increase in negative income taxes in the lowest income sector) is the only way that I know of to equalize the tax advantages of businesses that outsource and import.

Germany has high VAT taxes but those taxes fund its social network. That is exactly how we should be funding ours. Should we also raise taxes on the wealthiest among us. Most definitely yes.

But without a VAT, we will have difficulty bringing jobs back.

Our trade agreements really don't permit us to place taxes on imports or on outsourced services any other way. If you have a better idea about how to equalize taxes on domestic products and services and foreign products and services sold in the U.S., please explain it.

[Hannah Bell]

2. Please explain how VAT "equalizes" taxes on domestic & foreign products.

It's a flat consumption tax. If the foreign products are cheaper when they enter the country, they're still cheaper when you add VAT to them.

It does nothing to make domestic products more attractive, or benefit domestic producers that I can see.

[JDPriestly]

4. Producing products in or buying services from foreign countries

is a means of avoiding American (or German, or French, or Austrian, etc.) taxes. The VAT is a means through which the government can obtain tax revenue from products sold regardless of where they are produced.

Let's say that a car company buys steel from South Korea. Not only do the South Korean workers earn lower wages but they pay no income taxes to the U.S. government on those wages. The cost of producing the product is reduced considerably not only by the lower taxes on the wages but by the lower employer taxes that the company producing the steel makes as a percentage of the price at which the car is sold in the U.S. The car company sells the cars at nearly the same price as it would sell them if it bought the steel here, but it makes a much bigger profit on its cars. It rewards its management with stock in the company that will be later taxed at the relatively low capital gains rates, and the company looks very profitable and its management is just delighted.

The U.S. government lost tax revenue on this deal. What is more jobs that could have been done here and for which the company would have had to pay higher wages. (Remember the money saved by paying lower wages and taxes in S. Korea went to the company management in the form of stock shares which can be easily overvalued on the market with all that extra cash the company has stashed in its accounts in the Caymans).

The workers who would have made the steel get jobs here that pay a lot less, and our government loses the tax revenue. As a result, the government (and the people who can no longer work in the steel industry) either do without or borrow. Since we started outsourcing and losing jobs, we have mostly been borrowing. We suddenly woke up in 2008 to discover that all that borrowing had thrown our banking system into a desperate race for money, involvement in crazy gambling schemes and the bursting of a financial bubble.

A VAT tax would mean that companies that buy cheap steel from S. Korea cannot sell products in the U.S. without paying a share of the taxes that keep our system going. And by our system I mean things like the social safety net, research, education, the military, etc. The cost of keeping that going based primarily on income taxes on dwindling incomes and property taxes casts a burden on American commerce that stifles it.

Wrote this fast. Sorry if this doesn't make sense. This is how the Germans are funding their recovery.

[Hannah Bell]

5. If the steel is bought in S. Korea, how does a US VAT provide tax revenue in the US?

[JDPriestly]

6. The VAT must be paid at the point of sale.

The VAT is paid by the purchaser of the finished product in which the steel is used. It adds to the cost of the product for the end user, but in a way that provides taxes to the government and therefore revenue that can replace some of the taxes that would normally be collected from the paychecks of the American workers who would be paid to make the steel if it were made in this country. It is a way of increasing the cost of all products equally. The VAT will only help the economy and encourage job creation if it replaces some of the existing income taxes. It should not be added on to the income taxes we have but rather replace the income taxes that are lost due to outsourcing and importing.

[Hannah Bell]

10. i repeat, if the steel is bought in korea, or if the products the steel is in are bought by the

distributor in korea, it doesn't seem the distributor would pay any VAT.

The *consumer* purchasing it in the US would pay, though.

Which looks to me like the big guys don't pay, the little guys do.

So I don't see any benefit -- it's another way to make the little guys pay, & it does nothing to "equalize" anything, nor to promote production at home.

[muriel_volestrangler]

14. The VAT is paid to the government of the importing country, at the point of import

eg:

Imports from outside the EU

Goods are treated as imports if they have arrived directly from outside the EU or via another EU country without being released for free circulation. Find out which countries are inside and outside the EU for VAT purposes on the HM Revenue & Customs (HMRC) website.

You'll normally have to declare any goods that you import to HMRC and also pay any VAT and duty that's due. Import VAT and duty must be paid before goods are released by HMRC. Find a declaration of imports form (C88) on the HMRC website.

http://www.businesslink.gov.uk/bdotg/action/detail?r.s=sc&r.l1=1079717544&r.lc=en&r.l3=1073894988&r.l2=1078304514&type=RESOURCES&itemId=1073790602

Yes, you can say 'the consumer pays it in the end'; but a consumer of goods always pays for the complete price the companies involved set to buy their materials, do their work, pay their taxes and take a profit. If there are income taxes and payroll taxes to be paid, that will be factored into the end price; if there's a corporation tax on company profits, that will be factored in too; and VAT appears in the price as well.

Note that JDPreistly said VAT needed to be "combined with a reduction in taxes for lower income brackets (and an increase in negative income taxes in the lowest income sector)" to help equalize post-tax income. If we take as an example, the Gini coefficients of the US and Germany, before taxes and transfers, and after them, we get, for the mid-2000s:

          USA   Germany
pre-tax   0.46  0.51
post-tax  0.38  0.30

http://stats.oecd.org/Index.aspx?QueryId=11112&QueryType=View

The other major EU countries similarly show a greater fall in the Gini coefficient after taxes and transfers, despite them having sizable VAT rates.

[Hannah Bell]

15. with this little codicil:

"or it is possible to register the transaction as an inter-company sale with no VAT being collected."

i.e. different branches of international corps can rig it so they don't pay.

but the consumer still pays.

and i see no move to reduce random taxes & fees on lower brackets (for which income taxes are relatively negligible, but other taxes, fees, etc. are rather hefty).

[muriel_volestrangler]

17. Better quote the whole sentence you found, because it's about transfers *inside a VAT area* (eg EU)

It's from the current Wikipedia wording:

The European Union Value Added Tax Area is an area consisting of all the European Union member states and certain non-member states which follow the value added tax ("VAT") harmonization rules of the European Union Value Added Tax ("EU VAT"). The principle is also valid for some special taxes on products like alcohol and tobacco.

Goods are only considered as imported or exported if they enter or leave the area. The VAT percentage does, however, differ from country to country within the area, which is a complicating factor, especially when, for example, an Internet-based reseller in one EU country sells to an EU customer in a different EU country.

When goods or services are sold to a company across a border within the area, either the buyer pays the sales country's VAT to the seller, or it is possible to register the transaction as an inter-company sale with no VAT being collected. If VAT has been paid the buyer can include it in their VAT accounts just like VAT paid locally.

http://en.wikipedia.org/wiki/European_Union_Value_Added_Tax_Area

Thus this is talking about examples like a component manufactured in Belgium and then sold to a company in the UK for use in another product.

[Hannah Bell]

23. missed that, however, what's this about?

International trade VAT: the basics

How to reclaim VAT on imports

In general, you can reclaim the import VAT that you have paid for business goods. This claim should be made on your VAT return for the period during which the goods were imported.

http://www.businesslink.gov.uk/bdotg/action/detail?r.s=sc&r.l1=1079717544&r.lc=en&r.l3=1073894988&r.l2=1078304514&r.i=1073790605&type=RESOURCES&itemId=1073790606&r.t=RESOURCES


Exempt goods and services

There are some goods and services on which VAT is not charged. These are exempt from VAT. Items that are exempt from VAT include the following:

•insurance, finance and credit
•education and training
•fund raising events by charities
•subscriptions to membership organisations
•selling, leasing and letting of commercial land and buildings - but this exemption can be waived

http://www.hmrc.gov.uk/vat/managing/reclaiming/reclaim.htm


looks like the same array of special cases as with the income tax.

[muriel_volestrangler]

25. The first part is how a VAT works (and what makes it different from a sales tax)

What happens is that each business pays VAT on the amounts it sells its goods and services for, but after subtracting the amount that had been paid no goods and services it had bought from elsewhere. This means that each stage of the process pays the tax on the value it adds.

Thus if a mining company produces ore for £5 (excluding VAT), a refiner produces metal from it and sells it for £15 (excluding VAT), a computer manufacturer produces a computer from that and £30 (excluding VAT) of other materials, and sells the computers for £200 to a private consumer, and to a business that uses the computer as part of their service (on which VAT is chargeable), a 20% VAT would be:

Mining sells for £5 + £1 = £6; pays £1 to the taxman
Refiner sells for £15 + £3 = £18; pays £3 - £1 to the taxman (=£2, ie 20% of the £10 increase in value)
Manufacturer sells for £200 + £40 = £240; pays £40 - £3 - £6 tax (=£37, 20% of (£200-£30-£15))
Service provider pays the VAT on the service they provide, but can offset the £40 they paid for a computer

It can get complicated (and one criticism of it is that the complexity can be used to hide frauds, especially with transfers between EU countries), but the idea is that the VAT gets paid in the area where the parts of value were added, rather than just where the final sale was made; and a company can only claim back VAT if they are paying more by using the product or service to produce another one.

The VAT paid on imports is claimed back in a similar way, so that an imported good is taxed in the same way as a domestically produced one - the importer pays the tax on its value at import, and that tax can be set against the tax paid by a business that purchases and uses it.

The exemptions are ones that governments have decided are classes of goods and services that shouldn't be taxed, because it would have a detrimental effect on people or business. Thus a loan is not subject to VAT - having to pay another 20% (or whatever the rate - 17.5% in the UK) on the money
you borrow to buy a car would be hit the poor rather than the rich, and taxing all loans to businesses would discourage business expansion. The same idea goes for education as well. I'm unfamiliar with the status of commercial land, or what the possible exemption might be.

[Hannah Bell]

38. yes, i see.

"Under EU trading rules a UK company importing the goods does not have to pay VAT, instead it is charged to the British company that sells the goods on. The goods are then exported before being re-imported."

http://news.bbc.co.uk/2/hi/business/5369776.stm



VAT on imports

When a company imports goods into any EU country, VAT becomes due...This import VAT is recorded as a recoverable deduction on the next VAT return filing of the importer. If it then sells the goods in the country of import, it would apply local VAT on the sale, subject to local rules.

Importation VAT can be offset against the sales VAT. Alternatively, the importer may seek to sell these imports across Europe from its base, which requires VAT compliance in the target territories.

Non-EU importers registering for VAT have to appoint local fiscal representatives in most European countries. The fiscal representative is responsible for all of the importer's VAT compliance, including the filing of returns.


VAT Deferment

A number of countries offer special importer schemes to allow for the postponement of this import VAT. Often, this means having a one month delay on the payment by opening a special account with the local tax authorities, e.g. in the UK and Italy.


The Netherlands importing VAT

One of the most convenient importer regimes can be found in the Netherlands. The import VAT is declared in the VAT return, but does not have to be paid, thus providing significant cash flow benefits. To take advantage of this facility, companies without a permanent establishment in the Netherlands must appoint a local fiscal representative.

http://www.tmf-vat.com/vat/importing-vat.html



The main advantage of this regime seems to be to tax ordinary people for consumption v. income, whereas the financial transactions of the upper-crust aren't taxed.

[MajorChode]

3. I can't agree

The VAT tax is a ripoff to the lower classes. I could care less that it's marketed as a way to pay for social services. You can't polish a turd. The social welfare of all citizens is the responsibility of everyone. All taxation should be based on income and should be progressive.

[Cessna Invesco Palin]

7. How, exactly, would you manage that at point-of-sale? n/t

[MajorChode]

9. I wouldn't try

nt

[Cessna Invesco Palin]

11. So... no sales tax?

I don't think that's gonna fly.

[MajorChode]

16. Not only that...

No property taxes
No fuel taxes
No utility taxes
No social security taxes
No medicare taxes
No all other taxes that are regressive

And yes it would fly, but most people don't think to actually put a calculator to exactly how much of their money (and more importantly the percentage of their income) goes to all forms of taxation verses how much the richest Americans pay as a function of their income. Instead they listen to blowhards like the portly drug addict work the equation from the other side and tell them how much of the nation's overall tax bill the richest Americans pay, which is a meaningless figure when you're trying to decide how much they should pay.

[Chemical Bill]

19. I'm with you.

The only thing I would suggest differently is a tax on wealth.

Bill

[Cessna Invesco Palin]

20. And where exactly are you making up all of this lost revenue? n/t

[MajorChode]

21. You act as if just because that's the way things are, that's the way things should be

I tend to think more progressively. The cost of government is already known. You can simply tax people based on their income with a progressive formula that insures that those with more income pay a higher rate. The formula is set based on the needs of the government to pay for those services the people have deemed necessary. It's not all that complicated actually. The net effect is that those who have less ability to pay will see lower taxes and those who have more ability to pay will pay higher taxes. This is in contrast to the system we have now that does the reverse.

[Cessna Invesco Palin]

22. That doesn't answer my question.

I don't see how incremental, or even substantial increases on tax rates for high earners make up for all of that lost revenue. If you can actually provide some figures that support your assertion, I'm all ears.

[MajorChode]

24. I'm not sure why you need to be drawn a picture

It's not really all that complicated.

The total federal tax receipts is about $2 trillion. The total state tax receipts is about $1.7 trillion. So the total taxes from all sources is about $3.7 trillion. The GDP of the US is about $14 trillion. You would need an average tax rate of 26% to produce the needed revenue. Those at the bottom pay a lower rate, those at the top pay a higher rate.

[BzaDem]

26. "It's not really all that complicated."

Funny you should say that when you are completely ignoring the question.

"Those at the bottom pay a lower rate, those at the top pay a higher rate."

This is how the current system is, and how it should be. In fact, those at the top should pay a higher tax rate. The problem is that "those at the top" are a small group of people. You could double their tax rate (relative to today, where income taxes are only a portion of total taxation) and not make up all the lost revenue in all non-income taxes you just eliminated. So while raising taxes on the rich is a good thing, you provide no evidence that you can eliminate all the non-income taxes and bring in the same revenue simply by raising taxes on the rich. To put it another way, to make the numbers work EVEN WITH much higher rates on the rich, you will still need to have higher income taxes (relative to today) on the non-rich to make up for the lost revenue in the regressive taxes. You end up with a slightly more progressive system, but not tremendously.

There is a reason why all countries in the EU have taxes like the VAT, and it isn't because they all have right-wing governments.

[MajorChode]

28. This is NOT how the current system is

If you actually believe that's how the current system is, it's no wonder why you are so confused by such a proposal. Less than half of all federal taxes are income taxes and even those taxes aren't progressive. The richer you are, the more likely you are to derive more of your income from equity investments. The top 10% own 91% of all stocks. Equity investments are only taxed at 15% max. FICA taxes make up most of the other half of federal revenue and FICA is highly regressive. Some state taxes are progressive, but not even close to the majority. The majority of state and local revenues are regressive. It's safe to say that the majority of taxes that people pay are regressive. Those at the top may be small, but their share of the pie is huge. The top 1% own 50% of all investments (for which they are taxed at a much lower rate than even the average American). And you want to try and tell me that such a system would be only "slightly more progressive". Sorry, I just don't believe that.

You are right, there is a a reason why the EU has VAT. The biggest reason was because Europe had to replace lost tariff revenue which was the foundation of their taxation at one time. But the reason is irrelevant, VAT is a regressive tax. If you believe in the VAT, you believe that regressive taxes are a good thing. I don't.

[Statistical]

32. totally wrong.

The income tax structure is *mostly* progressive (despite treating investments at lower rate being very regressive) however virtually all other forms of taxation are regressive.

Sales tax = horribly regressive
Gasoline tax = off the chart regressive (figure the % of income spent by someone making $20K vs $20 million spent on gasoline tax).
Payroll taxes = moderately regressive
Most state income taxes = flat to slightly regressive (in VA for example highest tax bracket is reached at $15K in income. $15K or $150,000,000,000 pay same tax rate).

The only thing that totally matters is TOTAL TAXATION. Collecting taxes from 20 buckets doesn't magically make more revenue than collecting from one bucket.

The purpose of dozens of taxes is to make the system LESS PROGRESSIVE. Then the rich say "look we pay the majority of INCOME taxes". Notice the claim is never majority of ALL taxes, just majority of income taxes.

If you can fund the govt by $3.7 trillion in taxes from 20 buckets you can fund the same govt with $3.7 trillion from a single bucket (income taxes). Well technically 2 buckets (federal income tax & state income tax).

Sure poor and middle class will pay higher income taxes compared to today but that it utterly meaningless. They would pay higher income taxes (say 15% effective vs 0%) but in return all regressive taxes will be eliminated. So total taxation for poor will decline a lot, total taxation for middle class will decline slighly and total taxation for rich will rise (and for very rich rise a lot).

The only metric that matters is total taxation. All taxes (in all forms hidden or visible) divided by total income (in all forms).

[muriel_volestrangler]

37. The trouble is, there's a difference between GDP and total household income

There are figures for household income quintiles (and the top 5%) here: http://www.census.gov/hhes/www/income/histinc/inchhtoc.html

H1 gives the dividing points for the bands, and H3 the mean income in each band.
Roughly, this works out at about the mean incomes for all households of $68,500 in 2008; there are about 104 million households; so total household income is about $7 trillion. ie about half of GDP.

[MajorChode]

39. Who said anything about only taxing household income?

[Statistical]

30. +1000. Replace all forms of taxation with a single PROGRESSIVE tax system based on income.

Treat all income equally make system very progressive.
Eliminate almost all deductions.
Provide a subsidy for Americans living below poverty limit.

Too easy.

Collecting taxes from 20 buckets is never more efficient then collecting taxes from a single bucket.

A single progressive income tax (treating all forms income the same) *COULD* replace all other forms of taxes. Of course it would help 95% of Americans at the expense of the top 5% so Congress will never want that to happen. They work for the 5% not the 95%.

The fact that you have people on DU (of all places) arguing that somehow we NEED regressive taxes shows how much ground we have lost.

[MajorChode]

33. It is a bit disconcerting when even those on the left don't think such a thing is possible

Even if you don't care to learn anything about the complexities of the tax code, it's not that hard to see where revenue comes from and at what rate it's taxed.

Even though it *COULD* happen, I'm under no illusions that it will in my lifetime. I have lost all faith in the American public's ability to actually see how badly they are getting screwed. That's why I'm dumping as much money as I can into investments.

[Statistical]

34. This is how the right wins even with minority power.

Move the goal posts. If this isn't possible then we move to right some. Then that is possible but very hard so we move further to the right. Then we need to compromise (a little more to the right). Oops couple of Blue Dog holds outs (little bit more to the right). Republicans sneak in an amendment move a little bit more right.

Imagine "extreme left" as one end zone (100 yard line) and "extreme right" as other end zone (0 yard line).
Sad thing is we don't even start at 70 or 80. Hell we don't even start at 50. We start at like 30 or 40 and by the time we get done moving the ball to the right we get "resolution" at 5 yard line. I mean I guess it could be worse Republicans would just pass stuff at 0 yard line.

Republicans blast the bill (at 5 yard line) as socialism (further shifting playing field to right), then cycle starts over.

That's why I'm dumping as much money as I can into investments.
It is sad but I agree 100%. Me & my wife have slowly ramp up savings to 15% of gross income. Also I roll my 401K into Roth IRA ever couple years (and pay taxes on it). Taxes on middle class will only rise in the future after all regressive taxes have been maxed out. Once again we will compromise on the Republicans 5 yard line and call it a victory.

My goal: $1 mil in Roth IRA (tax free) and live overseas (Caribbean or Latin America).

[MajorChode]

36. You've just hit the nail on the head as far as why the US will never be as progressive

...compared to other places. There's too many stupid people who are swayed by such ridiculous arguments. It's hard to believe that 50 years after the McCarthy era that people are still falling for the ghost of Stalin bullshit, but here we are. All the right has to do is label something as socialism and that absolves them of any responsibility of serious debate. The sad part is, it doesn't have to be even remotely socialist in nature because so many don't even know how to define the term. The really sad part is that GOP ideology is far closer to fascism, yet the left chooses to instead engage in intelligent debate and not label it as such.

If I didn't have so much family here in the states, I'd probably join you down south or move to eastern Europe. My goal is simply to replace my working income with investment income with enough left over for a small amount of growth. Even after the failed Bush economy I'm still well on track for that to happen at a relatively young age. The only reason I can is because I make enough to escape some of the so-called progressive taxation and when I retire I'll be able to escape it altogether. Those with lower incomes don't have a chance because the deck is so heavily stacked against them.

[MadHound]

18. Big difference between the US and Europe

Namely that a VAT won't be going to fund social services. Rather, it will nominally be going to fund our debt, but in practice this means that it will allow the US to continue the wars for oil and empire that are bankrupting us.

I somehow doubt that a VAT will come with a reduction for lower income brackets, and food and clothing will not be exempt.

The easiest way to deal with our debt is to stop these illegal, immoral wars. The trouble with that is it would put a halt to the profits being made by the MIC. So instead we're going to burden the lower classes with a VAT in order to keep these war going, and that transfer of wealth from the bottom to the top continuing.

Madness, absolute madness.

[Statistical]

29. Sorry. VAT is an utter ripoff to lower income.

Personally I would love to see all non-income taxes go away.

No sales taxes, no payroll taxes, no excise taxes, no "fee taxes" (FCC fees, telecom fees, state energy fees on utilities), no real estate taxes.

Simply:
federal income
state income

Combine that with all forms of income treated the same and reduced number of deductions/loopholes would finally mean overall taxation is progressive.

[Name removed]

8. Deleted message

Message removed by moderator. Click here to review the message board rules.

[cali]

13. right, dear. anyone who disagrees with righteous little you is a parasite

disgusting.

:puke: :puke: :puke:

Fortunately, that comment won't be around for too awfully long.

[BzaDem]

12. Funny. The average VAT in the EU is 20 percent.

I guess most of Europe is right-wing. Heh. What do I know.

:sarcasm:

[Art_from_Ark]

27. I doubt that the average John/Jean/Johann/Juan/Jan in the EU

has much say over VAT tax rates.

[Statistical]

35. What do you think total taxation on middle class in US is?

You are aware that any proposed US VAT would be in ADDTION to current regressive taxes.

Before you answer total taxation would be:
income tax (federal)
income tax (state)
sales taxes (state and/or local)
excise taxes (gasoline, etc)
payroll taxes (15%)
Real Estate Taxes

[harun]

31. I think we should have a VAT in the U.S. but only a few percent.

Maybe 3%. This VAT should be used to only pay down the debt and if the debt is paid the VAT should be reduced to 0%.

I have paid VAT tax while in the Philippines and Turkey. It isn't anywhere near 20% in those places. Still a bit high though.