VAT Attack! Will business go for it?

July 12, 2010
WSJ story implies Big Business would accept a value-added tax for several reasons: " data-share-img="" data-share="twitter,facebook,linkedin,reddit,google" data-share-count="true">

This WSJ story implies Big Business would accept a value-added tax for several reasons:

First, the VAT raises a lot of money, and Congress and the White House need a lot to avoid politically difficult spending cuts. According to one recent estimate, a VAT of 5% would raise $161 billion a year in 2012, even assuming that lawmakers build in protections for lower-income people (such as exempting necessities from the tax).

Second, many U.S. multinationals increasingly suspect they might have little choice but to accept a VAT, or some similar tax, if they hope to avoid further increases in U.S. corporate income taxes, or even win cuts in current rates.  … Some companies are hoping a VAT would encourage Congress to streamline and lower the corporate tax, something they regard as critical given international trends.

Third, even a few domestic businesses are beginning to eye the VAT as a possibility, despite the considerable administrative burden it creates. That’s largely because value-added taxes are imposed on imports at the border, and refunded to domestic businesses on their exports, making a VAT an effective subsidy for U.S. producers, according to the advocates. (Some experts disagree.)

Me: Why the rush to raise taxes? Here is the formula: a) cut spending; b) create a more pro-growth tax system; c) see what sort of budgetary gap remains.  As the Japanese election shows, voters are dubious of the need for dramatically higher taxes.

3 comments

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Jim, There is consensus that we need stimulus in the short-term, and after recovery begins we will need more revenue, as the U.S. government now spends 3 dollars for every 2 collected and the spread will grow. The VAT is the best way to increase taxes, as unlike the corporate income tax, it will reduce a U.S. disadvantage in world trade. The best way to introduce the VAT would be with a personal income tax cut and replacement of most or all of the corporate income tax in a revenue-neutral position. The expectation of a future time-certain rise in the VAT would act as a short-term stimulus to consumption which would assist in economic recovery. More VAT info at http://www.vat-us.com

Posted by VATfan | Report as abusive

VATfan, it’s not a good sign when you start out with an inaccurate statement. There is no consensus that “we need stimulus in the short-term.” If anything, there is consensus that the stimulus didn’t, won’t, and can’t. As for the VAT being “the best way to increase taxes,” that is a conclusion, not a statement of fact. And you must be incredibly naive if you believe that this Congress is going to cut personal and corporate income taxes. If a VAT is one possible answer, why isn’t a flat tax or fair tax another? I notice also that you make no mention of another possibility, to wit, reducing spending. Not to worry, though, the largest tax increase in history is scheduled to arrive on January 1, 2011.

Posted by OldBull | Report as abusive

A super-sales tax is the last thing we need for our consumer-demand driven economy.

As for the end of the Bush tax cuts, that’s due to the Republicans trying to use Enron accounting for the budget. They assumed they’d be able to extend them permanently even though that would have been 10 years in the future. Just like Enron saying the receive leg of their swaps would always turn around in enough time to make their earnings goals.

And if we move to a VAT, keep in mind two points. First, Europe uses the VAT to supplement the individual and corporate income taxes. Second, we’d see a wave of VAT tax shelters, just like Europe. There are such things, I’ve seen them pitched by accounting firms.

Posted by Gaius_Baltar | Report as abusive