I'm dropping in here to ask for views about the value added tax.

Please keep in mind I only have a rudimentary understanding of economics, so be gentle.

In this post, Tyler Cowan outlines his political arguments for the VAT (without really discussing the merits):

Setting aside the politics, is there a consensus viewpoint about the merits of the VAT? If possible, I'd be interested in hearing perspectives from both the Left and the Right.

Did this get re-posted? We don't need to patronize and categorize, fostering enmity and misunderstanding is the divide and conquer strategy of our rulers. Here's a hint - when somebody talks about the right and the left, they are probably clowns and you should tune them out. The world is not partisan, we are only made to think that it is by the partisans.

============

Much like the silly politics of Obama's debt commission, this is nonsensical window dressing.

More taxes in general can't possible pay for/be used to handle the debt. The USG has and continues to spend way more than it takes in, insufficiency revenue is not the issue. Fiscal responsibility is the problem. Throwing more money at spendthrifts does not address the issue.

A VAT is often highly regressive too.

There are no pros from a business owner or a consumers perspective.
If there are I would like to have them pointed out to me.

Businesses are the ones that have to do all the paper work.
The state just collects the money. So it's a very efficient way of collecting tax dollars.

I'm sure there are different variations of the VAT system. The one I'm familiar with is passed on to the consumer and the business write it off.
Where I'm from they set different VAT rates for different goods.
Books and magazines are taxed at 6%, food 12% and everything else at 25%
They promised to remove this tax, it was only supposed to be a temporary thing during hard economic times (it started out at 4% 1959)

It's a very regressive tax imo but I guess it's up to the social economic planners to try and set a non-regressive rate. And we know how good they are at setting rates.

"It is the absolute right of the state to supervise the formation of public opinion." Paul Joseph Goebbels

I visit this subforum very rarely, so don't know what you're talking about. But you're over-reacting: I was just using short-hand to ask for a range of viewpoints. Maybe I should have used terms like Keynsians and Austrians.

This is actually what I was looking for. I understand that some people are against any approach for increasing revenue. But assuming, for the sake of argument, that some revenue should (or will) be increased, I'd like to know opinions about this particular method.

Are you saying it's regressive purely because the cost will ultimately be passed down to the consumer? Is this more regressive than a sales tax?

Nice to see you posting over here Wynton...recommend you stop by more often.

I would cheerfully replace the income tax with the VAT if I could and address the regressiveness via rebate to those disproportionately affected every April 15th. I'd much rather tax consumption than income (as this encourages savings which is the backbone of capital formation/accumulation of loanable funds, etc) Also not sure how well it would fly given most people, when state/local/property taxes are factored in have a tax burden that's in the 50ish% range.

Truthfully I'd be amenable to the idea if it were part of a no **** balance the budget plan that involved deep spending cuts (not BS "slow the growth" cuts where the education dept only gets a 5% increase next year instead of 10% but real cuts). But imo that extra revenue will be *really* tempting to spend in other places rather than applying it toward the deficit, so the plan merits justified skepticism imo.

The VAT does the same thing as a sales tax except it's at all levels of production and not just retail. No, thank you. Most of the tax would get passed on to consumers but some would stay with the businesses. As someone else said it is also a regressive tax.

So this rebate... every year the 'poor' report to the government exactly what they buy and the government gives them some of their money back, awesome.

Where do I go to stand in line for the rectal cameras?
Rectal cameras are optional of course, we don't want to violate any privacy rights. just had 10k that guy in the uniform and you can skip it.

So, is there a difference in principal between the sales tax and VAT, or is the real distinction just a matter of administration?

Am I right that advocates of the VAT maintain that it is easier to administer (and harder to cheat), than a sales tax? And concomitantly, can I assume that the drawback is that it imposes more administrative burdens on companies?

Actually I suspect it'd be calculated in the same way you do with the sales tax deduction on your 1040, which simply an estimate rather than a detailed accounting of everything you bought.

I don't think ultimately it is really that fundamentally different than sales taxes. In a VAT the payer of taxes isn't just the end consumer but any business in the production/distribution chain that consumes resources....so if I am making a car and I purchase some steel I get taxed on my consumption of the steel opposed to a sales tax where the end buyer of my car is the only one who gets taxed in a sales tax. If I waste a tonne of steel in the production of the car because I am very inefficient I get taxed for all that wasteful consumption in VAT where in sales tax since only the end car is taxed and not the waste steel it missed that. That said, they are similar because if I get taxed on steel I will pass most of that tax down the chain in higher prices and the end user pays a higher price to compensate for the taxes. If you set the rates carefully the end result of VAT and sales tax can be theoretically precisely the same profit at each step and taxation for the government.

As for regression, the terminology is a bit confusing at times. It isn't directly regressive in the sense that the tax is less for more expensive things. But it does hurt the poor discriminatory in that they have to pay a higher proportion of their budget on say food and thus the tax on food. But this is precisely what sales tax does as well.

Since they are only taxing the "added value" it works out to be the exact same thing as a sales tax. I'm not sure I understand why you would choose one over the other.

Well as I understand it, sales tax in this country is only at the state level and the VAT is mostly at the national level over in Europe. Theoretically, it would be more efficient than a Sales tax because you cannot pass all of the costs of the tax to the next person that Adds Value but this requires as you said more Administrative burdens.

Overall the effect of the VAT is very similar to a Sales tax.

I have often wondered why you couldn't address the regressive nature of a VAT or National Sales Tax (as the sole source of Federal Revenue) by eliminating tax on food/toiletries, have an exemption for first X amount of housing expense (e.g. a % of National median income), and maybe a small rebate for transportation (again indexed to NMI).

Thoughts?

How do you keep track of all that? Seems like more paperwork and bureaucracy.

Just an added bonus of the VAT; it creates jobs!

Well no tax on end user sales on food should be easy. Some states already exempt food from sales tax.

Homeowner allowances:

A home purchase has to be closed by an attorney which would make the administration of the tax there pretty easy. Just tax whatever purchase price beyond a predetermined uniform national level indexed to income. As for rental, in order to manage property for another person one has to be a licensed property manager, which is to say you could incorporate the majority of rental collection and administration into existing property management infrastructure.

Transportation:

At the end of the year instead of filing reams of tax returns you would simply file for your uniform transportation rebate. All of your transportation inputs would be taxed all year so an base amount of tax paid in could be determined and refunded at the end of the year.

Also, bear in mind I would do this in place of our current tax system which is enormously complicated. The idea that a VAT would be more complicated and labor intensive than our current system is incorrect imo. Simply collect revenue at the point of sale, where an infrastructure is already in place I might add. Obviously, I am not trying to present a complete argument just seeing what people think with regard to addressing the regressive component to a national VAT or sales tax.

Incidentally, that this tax scheme is not likely to gather enormous sums of revenue is kind of the point. And, if you had to raise the tax rate to increase spending everyone would know about it in a hurry. My guess is there would be more accountability at election time.

The VAT is better than increasing income tax because taxing consumption is better than taxing production from an economic growth perspective. I don't think it makes a huge difference though because a lot of productive activities will still encounter this new tax. A better plan from an economic standpoint would be to reduce spending and taxes. The political will for this probably doesn't exist however, so we will continue to find new taxes and spend them foolishly until the situation implodes.

Democracy itself isn't sustainable.

i support it, i'd rather tax consumption than anything else. and maybe poor people will stop buying so much worthless crap and actually start saving money? the tax makes sense from a "green" perspective too imo.

This is the best argument for it that I've heard. By its nature, it is self-policing.

Instead of the actual levels or methods of tax collection, government spending is much more indicative of the real tax burden on the economy. VAT does nothing to address this.

I am inclined to agree. It is all academic as long as the government can spend via debasement at will.

What do you mean it's self-policing?

yeah idk about that, i could imagine a pretty strong black market developing to avoid those taxes. one example of this would be trafficking cigarettes between state lines.

If I understand the way the tax would be structured, the input-output VAT gives middlemen some incentive to make sure that taxes were paid, and thus makes it harder to avoid. I thought it was "accepted" that VAT were reasonably efficient in practice. Perhaps I am mistaken, or incorrectly identifying the reasons.

Well, generally the idea is that since the tax is paid at every level of the supply chain, it is harder to avoid completely.

I was mostly thinking of a comparison to a U.S. style sales tax (on final consumers) with my above post. It's not that VAT is magic, but it seems superior to a U.S. sales taxes -- especially from a black market point of view.