Archive for U.S. VAT?

Tax Professor Pushes Plan to Tax Consumption

It’s been a while since I posted about the potential for US VAT. The reason is simple – ‘it ain’t gonna happen any time soon’.

Professor Michael Graetz is the leading proponent of a federal consumption tax, and is still pushing his proposal.

He would impose a new national value-added tax and use the money, in part, to eliminate the income tax – and the filing of income tax returns – for families with incomes under $100,000. For others, there would be three marginal tax brackets (14%, 27% and, for income above $600,000,  31%.)  He’d also lower the corporate tax rate to 15%, cut the payroll tax and give cash to low-income families with children.  For more, see the full tax plan.

“It does not tear up the tax code and start over,” Mr. Graetz says. “It simply returns the nation to its pre-World War II tax system, where most revenue came from taxing consumption — then in an archaic way, through tariffs — and the income tax was limited to its proper function of providing tax justice through progressivity for folks at the very top. My proposal is designed to promote more economic growth without shifting the tax burden away from the top to families with less income.”

via Tax Professor Pushes Plan to Tax Consumption – Washington Wire – WSJ.

Comments off

Forbes: Income Tax vs. VAT

It is interesting to see that there are still commentators who see the VAT world in black-and-white: if there is a VAT, you can’t continue to collect income tax.
Jeremy Scott, contributor at Forbes Magazine, reviews the regressive VAT against the progressive income tax and concludes that a VAT in the U.S. would affect the middle class (whatever that is, these days) the most.

At the end of the day this is of course a purely academic discussion. Whenever a VAT is introduced, the taxpayer should be somewhat relieved of the burden of income tax, but not entirely. Plenty of examples are at hand world-wide, most recently the implementation of VAT in Kenya.

The practical issue that no-one in the U.S. is willing to address is the matter of the state and local governments that collect a hodgepodge of indirect taxes (most notably sales tax), versus the federal need for additional revenue.
In a somewhat, but not entirely similar scenario, China has been very forceful in integrating the business tax (local government revenue) into the VAT (central government revenue). Local governments get to keep whatever is left of the local indirect taxes, as well as get a share of the VAT pie.

Practically and politically there is no way that this will ever happen in the U.S., given that politicians are even willing to shut down the store for something as elementary and essential as healthcare for all.

The U.S. income tax system is progressive because we tax the wealthy at higher rates. A VAT is regressive because it generally benefits higher-income taxpayers (who consume proportionately less of their income and wealth). There is no good reason to reverse the tax-friendly policies for the middle class that the United States has adopted over the last 35 years.

via It Isn’t Time To Bury The Income Tax Just Yet – Forbes.

Comments off

VAT and Trade Presentation

Traveling today, but I just wanted to share this posting / slidepack about the impact of VAT on foreign trade. I strongly believe that this aspect of “border-adjusted” VAT is by and large a misconception. If VAT would NOT be zero-rated for exports, it would become a cost of doing business for the exporter. That’s not how VAT works in its most basic form, and – by the way – also not how sales tax works.

VAT and Trade Presentation – Trade Reform.

Comments off

IMF tells US to adopt VAT

TMF reports:

On Friday 14 June, the International Monetary Fund warned the US that its debt was heading toward unsustainable levels of 110% of GDP – many economists see 70% as the limit before growth is impeded. The IMF proposed introducing a full Value Added Tax regime to help control the debt.

They also provide interesting stats on how VAT progresses as a popular revenue source.

IMF tells US to adopt VAT as EU slashes Corporate Taxes.

Comments (1)

Online sales tax vs. VAT

This is an interesting opinion piece about the Marketplace Fairness Act. Value Added Tax in the U.S. ain’t gonna happen anytime soon.

Over the past years, there have been various calls for a value-added tax in the United States; the explosive growth of online commerce should renew that debate. The VAT is well suited to online commerce because it creates a chain of revenue that goes from vendors to wholesalers to final customers. Of course, a VAT would be inherently disruptive of state-sales taxes and would require radical changes at the state and national levels. We appear nowhere near that.

via Online sales tax: a good idea done badly | The Edgy Optimist.

Comments off

The proposed online cross-border sales tax

Comments off

Use tax may become a sales tax for out of state online purchases – UPDATED

So you know, there is going to be a vote on today the Senate approved an important first step towards a cross-state sales tax for online purchases. More voting is expected in the course of this week. It is yet unclear when the House will pick this up.

The current rule is that a buyer generally must pay use tax on all online purchases that are shipped from another state. The purchaser generally must report the use tax on his income tax return (err… this seldom happens). The new rule will be that the online retailer must collect sales tax of the state of the purchaser – no more fiddling with ‘use tax’ on the annual income tax return.

This mechanism is not unlike the “distance sales” in the EU VAT world, except that Internet retailers with out-of-state sales less than $1 million a year would be exempt. And it creates a filing requirement in 50 or so states (approx. 9000 sales tax regimes!), in stead of ‘merely’ 26 member states. The proposal creates a significant increase of compliance requirements – this is why the so-called sales tax bolt-ons in an online seller’s accounting system make so much sense.

Back in 1992 the Supreme Court’s ruled in Quill v. North Dakota that forcing businesses to collect and remit taxes to jurisdictions where they have no physical presence was too big a burden. This proposal seeks to overturn that decision.

Review & Outlook: The Internet Sales Tax Rush –


More in the New York Times:

The White House approves:

Comments (1)