Why are Democrats in favor of a VAT tax in America?

Isn’t the “Value Added Tax” a tax on big-ticket stuff?

I know I (as a member of the working poor) won’t be buying a new boat or private aircraft anytime soon.

“The Senate went on record Thursday as overwhelmingly opposed to a value-added tax”

Note; That is the Deomocratic-controlled Senate.

The Daily Caller April 16, 2010

@Seek_Kolinahr I thought VAT was on everything, although I have heard food is excluded, not sure. I think you are thinking of luxury tax. Maybe someone else will know.

A properly designed VAT with exclusions for essentials like food and necessities of life can work well and be fair to those with the lowest incomes. Nobody likes taxes but fair and visible ones are better than their opposites.

Is it because it generates revenue to pay for healthcare reform?

@Dr_Lawrence When you say opposites do you mean more fair than income tax?

As far as I know the VAT was a Republican idea. That way the poor can carry their fair share of taxes.

A progressive income tax is a much fairer way to raise income to pay off the debts left by previous administrations.

VAT tax is somewhat similar to sales tax, but it is applied at each level of production, so it never shows up as a line item on a sales ticket. There is some discussion of VAT tax as a method for bringing down government deficits. It was raised by several prominent Democrats as a policy choice. Republicans generally oppose any new taxes (or taxes in general) but are somewhat less predisposed against VAT. The Republicans have a version they call the Fair Tax, but this involves dropping all other income and wage taxes, which is something most Democrats oppose. VAT is a regressive tax, but if it were introduced in the US, it would probably have some zero bracket amount exempting low earners.

VAT tax is transparent to consumers in most places that it is imposed. Goods are generally quite expensive, but buyers mostly don’t attribute this to taxes, and may not even be aware that they are paying a tax. This may be one of its attractions to politicians.

I personally would oppose a VAT tax. If we’re going to raise taxes, then I would favor simply allowing the Bush tax cuts to expire. This would have a bad effect on the economy in the short run, but would hold down the deficit longer term. It would be the simplest course at this point, as the Bush tax cuts will automatically expire unless Congress acts.

Here in Europe, VAT is on everything but some things carry a higher percentage than others. If you consume you pay the tax. The more you consume, the more tax you pay (especially things determined as luxury items) . Not every country that adopts a federal sales tax makes it universal though. Australia tried to make ‘essentials’ or basic food items exempt.

A US federal sales tax would generate so much money, the country couldn’t know how to begin to spend the money. OMG.

We pay VAT on just about everything here (South Africa) – the only exception i think i know of is on certain food items (probably what they consider to be necessity foods eg veggies etc). There is a standard VAT rate of 14% on everything. It’s always included in the prices though, so it’s not like in the US where you’d see an item’s price but it would be exclusive of VAT and you’d have to add it yourself (which i find very stupid, they should just include it in the price like over here). Anyway, all i know is that, for small businesses here, VAT is a killer, because once you reach a certain amount of turnover per annum, you have to register your business for VAT and are forced to pay over 14% of your income before any deductions. It may not sound like a lot, but it sometimes means the difference between you making a profit or making NO profit at all because all your profit goes to VAT. This is especially bad if you’re in the service industry (as opposed to a retail inddustry) because you don’t have much to claim VAT back on (you claim VAT on stock that you buy). Anyway, you’re probaby not interested in the business side.
Other than that, we’re kind of used to paying VAT on everthing.

I don’t see how it is very different than sales tax? Except I guess sales tax is done by individual states. I think it lets the rich off the hook.

@cazzie Is there still income tax in the countries you are referring to? You pay income tax and VAT?

@NaturallyMe Same question for you, do you have VAT and income tax?

Yes, @JLeslie we pay income tax too… and our personal assets are given a value by the government and that is taxed too. I live in Norway, but I don’t pay much tax because i don’t earn very much…. it’s stepped. I’m not afraid of tax. If I pay tax, it means I’m well off.

@JLeslie Oh, yes, we have income tax as well. I THINK that goes from about 18% up to about 25% of your income? (not 100% sure, i hate to know the figures, it makes me mad), and for businesses the income tax is up to 30% i think, something horrendous like that, haha. The lower income people don’t pay income tax though, but only those with low incomes.

@cazzie I’m would not say I am afraid of tax. I tend to say if you paid a lot of tax it must mean you made a lot of money, so we think similarly. I favor a flat income tax, the very poor would still probably be exempt if I was making a plan. The wealthy in my couuntry get out of taxes with loopholes. Some Republicans here state that the welathy pay the majority of the tax paid in America, but they look at the dollar amount, not the percentage; I think that is totally ridiculous. If you only charge on spending, even if you exempt the poor, then the middle class get hit the hardest from what I can tell. They have to use the majority of their money just to live. The wealthy have gobs let over, being saved and invested.

It would be just like the current Federal taxes on gasoline or tobacco products. The consumer would not know it was there if they didn’t follow the financial news.

As proposed I think it is a bad idea. If they want to establish a VAT, then they better eliminate the income tax first.

It is more moral to tax consumption then to tax production. Between income tax and VAT, I would choose VAT. The problem is, that if it happens it will not replace income tax, it will be in addition to income tax.

@josie Why is it more moral?

@JLeslie Morality exists because
a.humans have volition, and
b.their choices actually matter since humans are mortal.
Production is more elemental than consumption, since reasonable people can always choose to limit consumption to subsistance levels, but if we limit production, we can only make up the shortfall by begging (which puts us at risk-what if nobody gives us a handout) or we die. Taxing production is like blackmail. You have no choice. Taxing consumption allows the taxpayer at least some choice in determining their level of taxation. The more choice you may exert, the less like a slave to the state you are. The more the state enslaves you, the less moral it is. The more it liberates you to choose, the more in harmony with your nature it is, and therefore it is more moral.

As far as I know, Republicans are the only current proponents of a Value Added Tax (VAT). It is basically a sales tax on all goods and services. As such, it is the most regressive tax possible. It’s a shortcut to getting to the “fair” tax the Republicans so desperately want. Regressive tax systems favor the wealthiest to the detriment of the poor. They result in rapid concentration of wealth in the hands of the top 1% and extremely rapic transfer of wealth to the top 1/10th of 1%. Since these people donate mostly to Republicans, taking care of them to the exclusion of everyone else makes perfect political sense. It’s just not good policy for the nation, as it tends to push us toward becoming a banana republic.

@josie All I know is I save about 10–20% of my husband income a year. When I work we save all of mine, I don’t consume more. So with your way my income would be completely tax free. So the “rich” get richer. I am not rich, but I obviously do not live check to check. Now, if my income was completely tax free I might be more inclined to go back to work, and thus taking a job away from the guy who really needs to work. This same guy would be paying sales tax under your plan on everything he buys, so he is in essence taxed much more than me, and he can afford it less. VAT or sales tax only would be a bonanza for me. How about you? Do you have a bunch of discretionary income that this plan would be beneficial for you personally?

@JLeslie The VAT is especially beneficial for billionaires, as they have no need to spend more than a tiny fraction of their annual income to live. The rest they will invest, often offshore where return rates are higher than they are in America. Leaving more and more of their income untaxed means they can buy up more and more of everything that produces any wealth. The countries that use a VAT applied to all brackets, oi a flat tax are all third-world banana republics with a handful of incredibly wealthy families owning everything, and 99% of the people living in abject poverty. If this is what Americans want, the VAT is the way to get there.

@ETpro Exactly. Exactly my point. I like a combination of income tax and sales tax.

@JLeslie My state has a sales tax, as do many. I can live with that. But if we were to replace our current tax code with a VAT the rate would need to be 30% or more. That would devastate the poor and middle class, but provide yet another big tax cut to the rich.

@ETpro Yes, we are agreeing. I thought the same thing. If we are not collecting from the highest income earners, making u for the loss would be a crazy high VAT. In TN, where I live now, there is no income tax, but there is taxes on dividends and earning from bank accounts (I find it to be regressive. Retirees can wind up taxed when they are living off of their savings and investments. I guess they passed the tax thinking it would tax rich people? I have no idea the original thoughts on it) and our sales tax is 9.25% and they tax groceries! I think it is awful. Of course we have property taxes also. When I lived in FL we had no state income tax, sales tax was reasonable, but property tax was much higher. That state also super taxes the tourists. I like that plan. And, we had a lottery. Meanwhile, I am talking state, and VAT would be federal. If there was a VAT would that eliminate state sales tax being lumped on? I kind of think in such a huge country like America, with each state being so different, it kind of makes sense to let each state be able to tweak what is best. What do you think? Sweden and some of the other countries named are like one of our states in terms of population.

@JLeslie A VAT couldn’t eliminate state sales taxes because they range from nonexistent in some states to brutally high, as they are in your state. If we were to set a VAT rate high enough to eliminate all state sales taxes, it would need to be closer to 40%. Even the rich would balk at that, as it would represent a tax increase for them.

@ETpro I’m wondering how or where you come up with these numbers? It makes sense to me that a VAT would need to be very high, but are the numbers you are quoting based on calculations estimated by experts?

@JLeslie I winged it on the state sales tax issue based on the fact that most states have a sales tax of 6% or more, so that would need to be added. The 30% number is consistent with figures non-partisan economics studies have produced. Also, when Ronald Reagan cut the top tax rate from 70% to just 28%, making that rate apply to all income brackets over $29,750 we started taking on debt at a massive rate. So clearly, 28% was way too low for a flat tax, because a flat tax is, for all intents and purposes, what Reagan’s voodoo economics gave us.

@ETpro The problem is the super rich in reality pay around 17% income tax, I might have discussed this with you before.

@JLeslie Yes, but that is 17% of the adjusted gross income. With a VAT, they would end up paying a far lower rate than that on their total adjusted gross income, because while they would be taxed at a higher rate on what they buy, they typically spend only a tiny percentage of their annual income buying taxable items. They buy investments and companies, and those purchases are not taxed under a VAT.

@ETpro I agree, I totally agree. I was just pointing out to you, and whoever is following, that the superrich, even if we increase their income taxes, probably will be paying the same percentage as the middle class in the end, they are not really taxed more in the end If anything I am giving you more ammunition for your argument.

I think that there may be some interesting and relevant stuff about consumption taxes here

@Ron_C If memory serves, the healthcare reforms that we recently passed were also a Republican idea from a few years ago.

@Lightlyseared You mean, “It generates revenue for the Iraq War and the Bush tax cuts on the rich.”, right? Sorry, but healthcare reform costs less over the next decade than either of those two things have so far.

Most countries have a form of income tax as well as a consumption tax of some sort.

@JLeslie You don’t think the rich spend more on consumables than the middle class? Your argument about them trading in companies and investments is a bit off. The wealthy have structures set up like Trusts and Registered Companies that they trade under. This way, much of what they spend on accumulating wealth becomes an expense they can write off against the income they generate. When you have a company and trusts, those entities are taxed separately from what your personal standing is.

We’re talking about a personal consumption tax. In the UK and here in Norway, businesses register so they get the GST or VAT back. There are different rules in each country, but essentially, businesses become collectors of this tax because they charge VAT on their stuff… collect it, but when they buy material and pay VAT they can subtract that from what the business has collected so are effectively NOT paying VAT. (or GST as it’s called in NZ and Oz) They do returns once a month or once every three months and pay the balance of what they have collected or get a refund for what they have paid out.

But a private person doesn’t get to do this. When he/she buys the more expensive private car or clothes or groceries or appliances for the house…they will and DO pay more VAT than middle and especially lower income people.

@cazzie I think the rich spend more than the middle class, but at some point they stop spending. Like I said the middle class spends almost if not all of their income. The rich only spend a portion, and then there is bunches left over. So the middle class is taxed on all of their money earned, if there is only a VAT, and the rich are only taxed on a portion of their earnings, only what they spend. If there is a combination VAT and income tax, the story is still the same, the middle class pay more tax as a percentage of their income. In this scenerio, not only is the tax not flat, but the taxation gets lower as a percentage the wealthier you are. As I said, if we had a straight VAT in the US, all of my earning would be tax free, I don’t spend any of it.

@JLeslie They’ve addressed that issue to a degree here in Norway. The VAT (or MOMs as it is called here) is two tiered. There are things deemed ‘luxury items’ and they are taxed higher. So, someone buying clothes at Target wouldn’t pay as much VAT than those who bought designer clothing on 5th Avenue, so the wealthy have to pay more if they want those luxury items. I can’t see this mentality going over well at all in the US. Horses for courses, as they say.

I still believe that a National Consumption Tax in the US, on certain, non-essentials, would generate loads of cash to help offset the deficit caused by… well.. um.. yeah… don’t want to argue that, but I’m sure we can all agree that it exists.

@cazzie I think it would generate loads of cash also if it is added onto the taxes we already have, but harm the middle and lower classes unfairly.

In the US we do have some luxury taxes on spending/consumption. Like cars over a certain amount. Not sure of the exact numbers, but something like typical state tax on the first $50K and then a higher tax on anything higher. So, a Porsche at $120K is taxed at a higher percent.

@JLeslie but isn’t that a state tax and not a federal tax?

Oh, and remember, we don’t have ‘State sales Tax’ in these countries. So, we have less infrastructure and probably less government to support in a lot of ways.

@jerv you are right, that’s why the health care plan and thing like a flat tax, and VAT are smoke and mirror legislation. Notice that prior to health care negotiations, the single payer people were specifically excluded, a flat tax sound fair but is really a reduction of real money for the super-rich and the VAT like @ETpro and @JLeslie say will concentrate wealth at the very top of the wealth pyramid.

A typical republican plan does nothing to raise up the poor, decreases the middle class and makes them pay more, and concentrates wealth at the top.

These people have been around since the beginning of our country. They fought to keep slavery, believe that deserving people from the small middle class would rise on their own, and thought that the country should be run by the landed elite. They also didn’t believe that the poor, lower middle class (a very small group), and women had no right to vote. I can see the conservative desire to return to that system of government.

@cazzie The way I understand it, yes, luxury tax is a state tax. I don’t think we have any sales tax, required to be paid by the end consumer, in the US that is federal. I could be wrong on this. Well, technically I guess it is the business who is selling to the end consumer is required to pay tax on goods sold, and they collect the amount from the end consumer. We do have federal taxes inmbedded in prices like gasoline and tobacco, those taxes are not apparent to us when we buy an item, whereas a luxury tax is right there on the breakdown of your bill. The reason I brought up luxury tax is simply to demonstrate that there is some higher taxation on spending for the wealthy on spending, similar to what you were writing about in your country.