Over the past couple of weeks we have seen an uptick in chatter about a VAT in the U.S.
First, one of the Republican presidential hopefuls, Ted Cruz, floated an indirect tax on businesses. He called it a Flat Business Tax.
Then, Cruz’ nemesis Marco Rubio blasted Cruz during a televised debate for trying to introduce a VAT. Both Cruz and Rubio have no idea what a VAT is, and in particular they don’t understand why 99% of the other countries are actually quite happy with their VAT or VAT-like indirect tax.
The Cruz-Rubio exchange magically relieved some columnists from their writers’ block. Here are a couple examples for your reading enjoyment:
“VAT appears in places such as Europe and Canada, and it is a useful tool in funding social welfare programs. Governments of those countries routinely impose a tax on the amount an employer pays to workers, which is one of the reasons why Rubio links Cruz’s ideas with a European-style VAT. ” (http://www.economywatch.com/features/The-Ted-Cruz-Tax-Plan-Realistic-Feat-or-Campaign-Hot-Air0118.html)
That is a payroll tax, not a VAT.
“Our current tax system should be simplified, and should not be vilified as an oddity because we’re the world’s only major non-VAT economy. Being different is not a bad thing. It’s kept the lid on our spending for years, and accounts for much of our dynamism and competitive advantage.” (http://fortune.com/2016/01/18/ted-cruzs-tax-plan-vat/)
Hmm… Really? Not having a VAT but rather a heavy burden of income taxes “accounts for much of our dynamism and competitive advantage”? Sounds a bit short-sighted to me.
“[…] the VAT tax is embedded in both the prices that business that are charging and in the wages they pay their employees.” (https://www.washingtonpost.com/blogs/right-turn/wp/2016/01/15/can-we-kill-the-idea-of-a-value-added-tax-now/)
VAT does not have to be embedded – it is perfectly acceptable for retailers to make VAT visible on cash receipts. And broadly speaking VAT is not a cost in business-to-business transactions. And still I don’t get that idea of VAT being embedded in wages paid to employees, as a payroll tax. That is not the VAT as we know it.
“In Britain, hot food is exempt from tax, so some stores have microwaves to heat the food, which then exempts it from VAT.” (http://www.economics21.org/commentary/value-added-tax-plan-vat-bad-cruz-paul-01-14-2016)
Oh those snarky Brits!
VATinfo.org featured a nice slide: