willbeurdaddy
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quote:
ORIGINAL: MileHighM
quote:
ORIGINAL: willbeurdaddy
quote:
ORIGINAL: MileHighM
W. I can't say I like the VAT. Right now the average consumer has no concept of what percentage of the product cost is actually made up from taxes. The VAT hides like any other tax in the product price tag. It really needs to be more like a sales tax.
I agree that a consumption tax is better. It is easier to collect and harder to cheat.
A sales tax is just a backloaded VAT if youre going to raise the same revenues from consumption. The consumer only cares about what comes out of his pocket and not how much went to taxes/materials/labor/profit. If transparency of taxes is a concern everything beyond staple items (which should be exempt anyway) could have a label of the VATs paid along the way. The benefit of a VAT at each phase of production is it spreads the pricing risk over the entire supply chain. If its only collected at the back end and there is a reduction in demand, its the last company that eats the sales tax portion of the drop in price (or the entire sales tax if demand drops enough). Smaller VATs along the way avoid that problem.
How do you deal with products produced abroad? It sounds like corporate america can avoid the VAT by moving off shore. Do you return the VAT on exports?
The sales tax is collected on the sales price, the transaction, not the 'estimate' value of the product. If the retailer drops the price, they only collect the tax on what they sell it for.
Last statement first....Yes...they only collect the sales tax or the last piece of VAT from the consumer, but there is a difference in the final sellers' net results when theres a drop in demand and therefore a compensating change in behavior to spread that risk back down the supply chain.
Heres a simplified example..there are three steps in the supply chain to company 4, the original raw materials are worth 100, and each of the companies adds $100 of value.
Assume there is 2% VAT that is passed along in each step of the chain. So the cost to Company 2 is 202 ($100 raw materials, $100 Company 1's added value, $2 VAT), the cost to company 3 is 304, the cost to company 4 is 406, and the equilbrium price to the consumer is 508. There has been $8 in VAT paid in four steps, every company along the way has profited $100 per unit.
In a sales tax scenario it goes 200, 300, 400, 508. (Only the final seller has to collect and remit the sales tax). A 1.6% sales tax is needed for the government to achieve the same $8 revenue, and again every company has profited $100 per unit along the way.
Now what happens in the two examples if, in the last step, there is a sudden change in demand.
Assume that to sell all units produced Company 4 has to drop its delivered price (including final VAT or sales tax) by $15% to $432.
In the VAT case, Company 4 profit is (432- .51 VAT - 406 input cost) or $25.49 per unit. The government got $6.51 in total VAT. (The VAT in the last step is 2% of added value of $25.49 by company 4)
In the sales tax case company 4 still can only sell at $432, they must pay the government 6.80 in sales tax, and had input costs of $400. $25.20 profit per unit.
So the difference between Sales and a VAT Tax when there is a drop in demand is the government revenue is better off by $.29 per unit with a sales tax, all of which was eaten by Company 4. Company's 1 through 3 made the same $100 profit in either case.
So how does this influence Company 4s behavior if they are under a sales tax scheme instead of a VAT? They have incentive to produce less to go into inventory and produce more on an "as needed" basis. They arent forced to sell the same number of units, so their demand from Company 3 is lower, which lowers the price Company 3 can charge...and so on down the line. Each company in the chain has to take a little less profit because of the lowered demand.
On your first question:
Corporate America doesnt avoid a VAT by moving offshore...they just pay the VAT to a different country. Their only incentive to move is if the US charges a HIGHER VAT. Its no different than income taxes.
If its a sales tax scenario, the consumer is still only willing to pay the same amount. If there is US Sales Tax PLUS offshore VATs (or income taxes or sales taxes) then the final US seller's profits are squeezed and he is going to be willing to pay less to the exporter. Similar to the above example, the entire supply chain suffers, while the governments collect.
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