Hey Americans & Senators!....Find out what VAT is

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President Barack Obama hinted Wednesday that a new value-added tax on Americans is still on the table, appearing more open to the idea than his aides have expressed in the last week. Obama said in an interview with CNBC regarding dealing with the deficit and the economy, "I want to get a better picture of what our options are." After Obama adviser Paul Volcker recently raised the prospect of a value-added tax, or VAT, the Senate voted 85-13 last week for a nonbinding "sense of the Senate" resolution that calls the such a tax "a massive tax increase that will cripple families on fixed income and only further push back America's economic recovery." Somehow the Senate managed to overlook the fact that all the countries of Europe that were only minimally impacted by the Great Crash of the past few years have VATs that have been keeping their economies afloat. The simple reality is that most Americans have no idea what a VAT tax is, and that's apparently true of members of the Senate as well.

Thom's picture
Jul. 31, 2007 4:01 pm


That 19% VAT in Greece doesn't seem to be very buoyant.

stwo's picture
Jul. 31, 2007 4:01 pm

I admit I need to do more research of the Vat Tax but what legislation I would really like to see is a tax on corporations' lobbying contracts.

Apr. 20, 2010 8:54 am

I wasn't quite sure what your point was (Thom) in listing the various stages from pig iron to finished car in your explanation of VAT (I had momentarily diverted my attention away from the show - shame on me!) but, to clarify, VAT is traded off between businesses which are upstream and downstream in the supply chain or manufacturing process. Only the end consumer (Joe Q Public and his lovely family) will pay a net charge on VAT. I'm not an economist, but certainly VAT acts as a disincentive for consumer spending (in general) - which you could argue was a contributory factor to Europe emerging (relatively) unscathed from the financial crisis: expensive goods coupled with expensive credit lead to reluctant purchases. I have been on both ends of the VAT chain having lived and worked in England, Denmark and France, and run businesses in England and Denmark. It certainly helps the cashflow in being able to cut up to 25% off the expenses as a businessman (you only end up paying the net difference between VAT paid and VAT charged to the government). But as a consumer, if VAT is not carefully managed, it really will bite you hard - all consumer goods and most services in Denmark, for example, have 25% VAT added to them (known as MOMS in Denmark) - food, clothes and books included. Of course, that leads to a lot of cash-in-hand work, and thus a lot of lost taxation revenue ...

As an aside, I'm a recent arrival in the US, having been blessed with US citizenship since birth, although having lived in Europe for most of my adult life. I must say, your show presents a cogent and lucid view of the issues in your wonderful - and complex (and occasionally insane!) - country. Thank you!

Daen's picture
Apr. 22, 2010 11:39 pm

I live in the UK, and we have 17.5% VAT. Food and children's clothing are excluded. It doesn't seem to have made a difference to how badly the UK economy has been effected by the financial crisis.

Personally it is an unfair tax, as it impact all people the same, and as stated above, its unfair for people on low and fixed incomes.

meljomur's picture
Jul. 31, 2007 4:01 pm

Thom, I think another great guest to discuss what is going on in Greece is John Perkins, author of "Confessions of an Economic Hit Man". We are seeing more and more evidence that Greece was set up to fail, and the IMF is notorious for crippling a country they come in to help. Would love to hear from John Perkins as to whether he has evidence that Greece was deliberately set up to fail, and for what reasons.


Mystic's picture
Jul. 31, 2007 4:01 pm

I am not sold on the VAT idea due to its regressive tax aspects... Daen and Meljomar show how a VAT implemented by todays leaders can function as a punitive sales tax on lower incomes.

Thom has made a case that Vat will improve scrutiny of corporations internal movements of goods, including across borders, which can be a kind of shell game to avoid reporting their true incomes. This is important, but is a Vat the only way?

What is more fair are progressive taxes, like income tax, where the wealthy pay a more fair share, (except here the tax brackets have been turned upside down) . An estate tax prevents conversion of investment into private wealth across generations... (repealled). A small stock transfer tax is a way both to dampen speculation and raise revenue. The New York transfer tax on Wall St. worked from 1905 (up to mayor Koch, in 1981) . It paid for free college for everyone and imo helped make NY , and the US, into world leaders.

Interesting take from across the pond... From http://en.m.wikipedia.org/wiki/Robin_Hood_tax

... Another difference between the Robin Hood Tax and the Tobin Tax is that the Tobin Tax was ntended primarily to stabilise the economic[ 18] [ 19] market rather than generate revenue[ 18] [ 19] market rather than generate revenue Economists and analysts are now divided as to whether a small transaction tax would have a significant braking effect on the velocity of trades. The primary objective of the Robin Hood Tax campaign is to generate revenue which could be used domestically and to fund international[ 20] aid...

some nice pictures here State of New York Stock Transfer Tax stamps http://mysite.ncnetwork.net/res0wtjh/NewYorkStockTransferTax/dialupIntro...

Jul. 31, 2007 4:01 pm

A VAT tax will be painful for all consumers, and it will add huge gobs of cash to the Treasury, to be sure. However, one thing is for sure - No matter how much revenue it adds, our Congress will still spend more than it takes in.

Congresspeople who buy votes with public funds are the only winners in this scenario.

PeeWee Returns's picture
PeeWee Returns
Jul. 31, 2007 4:01 pm
Quote meljomur:

I live in the UK, and we have 17.5% VAT. Food and children's clothing are excluded.

I am amused by the logic of the folks who crafted the UK VAT. If the VAT is painless, why are some items excluded? This seems like an admission that the VAT has a punitive aspect.

PeeWee Returns's picture
PeeWee Returns
Jul. 31, 2007 4:01 pm

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