One thing I appreciate in your post is that this Stimulus is simply not following Keynesian economics. Keynesian was all about domestic income from temporary government expenditures, temporary government spending and also was not applicable when the economy was fully functioning.
What we got was not directly connecting Stimulus to U.S. citizen income by any stretch, i.e. they did not tie jobs to U.S. citizens, keep the expenditures within the U.S. etc.
that's true and it's also true if corporate lobbyists can fiddle with any area of policy....is it tax policy most of all.
On the other hand, the United States needs a major leveler on trade and this is one sure fire way to get it.
The WTO rules against the US and will assuredly not rule against all of these other industrialized nations with VATS (including India).
There is no way by "worker and environmental rights" one is going to really eradicate the wage differential around the globe but this could be quite the tool to help that out.
But firstly is to understand the rebate game (which should also be passed onto consumers btw).
Firstly, I am getting very irritated. Now the point of EP is not to attack first and thing about it later, it is to think first in comments. I'm trying to point out that a VAT, as utilized by the EU, can be one hell of a trade deficit leveler.
So, people quite attacking me and read the links that I'm using to make the case.
Firstly no, very little is made in the United States. Secondly a VAT can be rebated at the import/export level!
That is the point I am making, not misuderstanding the basics on VAT.
I am going off of various recommendations I have already read and the point is to get this rebate that most other industrialized nations get....on exports and imports...
not the actual VAT itself as a concept.
Now these two articles give some good overview on precisely how other nations use their VAT as a trade leveler.
Now you all are just taking one type of VAT but it is one complex tax and it does NOT, repeat, does NOT have to be implemented by the examples you give. Not by a long shot...
See the key for "rebate" and "incentive", which should also be passed onto consumers as the rest of the VAT is.
I read the Choate stuff and am familiar with some of the other VAT (or GST) out there. But, my Patrion Saint of Populism, you aren't seeing the forest from the trees. You're looking at the import goods aspect still and manufacturing jobs. What we're saying is that an implementation of a Value Added Tax on imports will turn out to be the key that opens up Pandora's Box. They give the rah rah speech on "protecting jobs" or domestic industries against "dumping," in the guise of that VAT. But that will be a ruse, and you know the biggest liars in the world are government officials (well after fund managers on CNBC).
It starts with imports, then it will spread to other items. Next thing you know, after the plumber has fixed a leaky pipe (assuming you get one instead of doing it yourself) and on his bill is a VAT portion!
but you're wrong. While you're saying we're focusing on the consumer, you're only looking at the trade. Do you really honestly believe this will just be on imports? And by the way, until the majority of the stuff that will be slapped with that VAT is made here, you will go through a very long indefinate period of paying high taxes. Secondly, as Bruce smartly pointed out, the rich will not pay this out of their income but the rest of us will. Because at the end of the day, it will not reverse trade deficites entirely or even significantly. Why? Because the costs are passed on to the consumer.
Say you're importing a DVD player, and prior to the vate it cost the importer $15/unit. Let's also assume that his retail price that he thinks the market will bear is double wholesale or $30. Now one of three things will happen here with the VAT. Either it gets slapped on the moment it lands onto shore or when that retail markup is imposed, or what I think is the worst of the two where VAT is utilized on both when it arrives and at the markup. Now, for arguments sake, let's take the worst-case scenario rate that I heard on NPR and CNBC, which was 25%.
Scenario Two:
Import price = $15 (VAT is not applied)
Final Retail Price (double his wholesale + VAT applied only on retail end) ($30 + $7.50 VAT) = $37.50
Scenario Three
25% VAT import price ($15 + $3.75 VAT) = $18.75
Retail price (double his wholesale cost) = $37.5
VAT (25%) applied on final retail value (37.5 + $9.375 VAT) = $46.87
In each case, the retailer or wholesaler passes on the VAT cost to the client. Now I know I'm over simplifying and left out a few things. Also, you could have cases where a business would eat a portion or all of the VAT to gain market share. But I suspect that would not be a long-term plan.
Either way, you could witness the Value Added Tax being applied all along the product chain. You brought up steel, there is nothing to stop provisions being put in place to have VAT ending up all the way to the final product that you buy at the store. From what I have seen, the visibility of this additional tax varies. I have seen some retail operations in Europe display their retail price and then add in "Plus VAT;" resembling possibly scenario two. In other cases, the VAT is hidden.
Once more, this tax encumbrance doesn't even include local sales taxes. Now here in Chicago, whichever VAT scenario is applied, the City (actually Cook County) applies the sales tax on the final value, which stands at 10.25%. So you could actually see a final "sales tax" of 35.25%! Tell me that doesn't hurt the poor or middle class!
Lastly, to assume that this would only apply to imported products is, to say the least, unwise. The government will by like someone who goes to a buffet but has eyes bigger than their stomach, as my mom used to say. The rush of all this cash from VAT will get them thinking "hrmm...we're bringing in all this money on import items, what about domestic products?" Also, given that the service sector is so huge, to the state it will seem as one giant juicy untapped source of revenue.
if you bothered to read any of my many posts at all, not only have I written in detail on a VAT but I also have lived abroad and I am frankly not in the mood with this tone.
I am pointing out it's overall effects by reducing the complexity because people do not understand how a VAT helps the U.S. trade deficit.
Its on imported and domestic product impartially, except of course that it magnifies cost differentials.
Where did you get the impression that a VAT is only on imported products? What country in the world has a VAT that is not actually a Value Added Tax but is, instead, a hidden tariff?
And why hide the tariff? If the US wants to impose a non-discriminatory across the board tariff, because of our structural and unsustainable trade deficit, we are well within our rights under the WTO to do so.
... at each stage of production. Imports are assessed the VAT when they come into the country, to bring them to parity with domestic products, and exports are rebated the VAT, leaving it up to the other country whether they want to tax them or not. But it simply is NOT exclusively a tax on imports.
And of course, its the cheaper steal, between US, China, India or Brazil that attracts the lowest VAT.
I was living in Australia when they introduced their VAT (they called it a GST, for Goods and Services Tax, because recent immigrants from Europe were familiar with a VAT, and so the less familiar name was more politically marketable).
I think there is a misunderstanding, this is not an "across the board" sales tax. It's on imports, which levels our domestic goods. It's all about the trade deficit and equalizing that out. People are focused on the consumer, but one needs to think about things like U.S. steel vs. India or China or Brazil steel.
So, think of it this way, it's going to generate more U.S. manufacturing jobs, so it's not the same thing as a "flat tax" or other regressive taxes.
With a lot of Americans unemployed we should send the guest workers home. Obama's priority should be first with Americans and then permanent residents to get jobs.
I think people aren't getting this, a VAT is really a tax on imports. It's a glorified hidden tariff that is legal under the WTO. It's not on domestic or should not be.
And below an exerpt from a featured post by Rolfe Winkler of OptionARMageddon now displayed at naked capitalism:
"During a press conference today, FDIC Chairwoman Sheila Bair was asked about the Journal's report that banks are lobbying to buy assets under Geithner's toxic asset plan, the PPIP.
"She says banks will not be able to bid on their own assets, but clearly leaves open the possibility that they'd be allowed to buy the assets of other banks.
"This is highly problematic. If banks can act as buyers in any capacity, what's to prevent collusion? With just a sliver of equity and a pile of non-recourse federal loans, Citigroup could fund a special purpose vehicle to overpay for BofA's bad assets. In exchange BofA would overpay for Citi's assets. The beauty of using non-recourse debt is that you can walk away from it. The lender, in this case the taxpayer, is stuck eating the loss on the bombed-out asset."
Here any actual thievery would be so blatant that even a cadaver would know that someone had their hand in his pocket. And who could blame the banksters if this little number were acted upon? They'd just be filth doing what filth does: Acting filthy. But someone on the inside, Shiela Bair, is about to unlock the door and disarm the alarm for them. Bair, it is said, just won't rule out zombies buying the drek of other zombies. And this woman the one person in our lobby accomodating financial leadership that one reputedly could look to for a moral compass as the odor of the accumulating sewerage becomes paralyzing? Its like the baby killing Michelle Obama being seen as our First Mother. If this one goes down - and it likely will - all that will remain is Victory Gin and tracing out 2+2=5.
Wealthy people put some of their income into wealth accumulation, with pays VAT at a rate of 0%. Poor people put all their income into consumption, with pays VAT at the face value. So its an income tax that starts at the full face value and declines based on how much money is shifted toward wealth accumulation.
Well, there's also the middle class people paying 29.9% on their credit card because they were late in making a payment ... while the VAT is assessed on actual products, it normally does not involve taxing important things like the Finance Sector.
That would be the same as taxing the product at every stage in the production from raw material to finished product and then rebating the exports, wouldn't it?
We already have a wide range of sales taxes, and already make exports sales tax free.
Regarding domestic production, the reason VAT was so strongly favored in placed with rampant tax evasion like Italy was that when someone evades the VAT tax system, they only evade the tax due on their value added ... they still paid VAT on the materials / products they used.
of all the things that need reform. But note, all other countries have a VAT and who is being hollowed out by trade?
The United States. Check out Pat Choate's book, I link to it, and he goes into great detail on why/how it would work and not be as "regressive" as advertised.
The added caveat of having it pay for health care seems to sweeten the pot.
But the biggest thing, it's legal in the WTO. If someone wants to do broad tariffs or even specifics, without plain withdrawing from the WTO it would be challenged and the WTO likes to rule against the United States.
You nailed it. The consumer is already, despite recent released confidence numbers, a wounded animal. You raise prices, you are going to see folks rethink purchases. And like seebert mentioned, this is going to hurt local economies.
The problem with a VAT, near as I can tell, is that even if you refund to domestic producers, you've just added extra overhead that the consumer will eventually have to pay for- the paperwork of doing the VAT.
Worse yet, how will this hit local-only economies whose goods don't cross state borders, let alone national ones? Suddenly every farmer in your local farmer's market is paying VAT to deliver subscription goods to their co-owners? That's a real problem towards rebuilding domestic markets.
I think a lot of people haven't thought this through very well- especially in light of the fact that we could achieve the same effect by simply canceling our stupid trade agreements and not exporting to countries that play the unequal tariffs game.
-------------------------------------
Executive compensation is inversely proportional to morality and ethics.
Forgive me, RO, but while I see your point on the trade thing, it still doesn't past the test. For starters, this will not cause companies to move factory work over here. The cost differential between building widgets in China and the US is still greater than even the 25% rate that I've heard. Secondly, in other places that have a VAT, you haven't seen trade deals renegotiated or as such. At the end of the day, it is what it is, a heavily regressive tax. Wealthy people will game this like they did when they imposed taxes on yachts, they went elsewhere for the boats.
Who gets hurt those most will be folks like you and everyone else who have to purchase consumer staples. Now one thing I've heard was that certain items would be excluded, but I am very skeptical that it would remain so. If you rebate the money (a la the Neal Bortz model of his national sales tax), that will invite more hassle a kin to what we do for our income tax, only this would be added to the former. On top of this, if you live in a state with a sales tax, then its almost a double whammy. Here in Cook County, home to Chicago, the county sales tax alone is about 10%. The city of Chicago has additional taxes based on what you buy. So really, assuming it's the 25% that I've heard, your tax liability here will be at least 35% of your total bill.
Also do you really believe it would be just on products? Mark my words, you will see a VAT on services as well. Yes, you may see some stuff made here, and you know what I would be happy to have my next gizmo made in America. But I am highly doubtful the full benefits foretold on your article will come to fruition. Bottom line, there won't be any real change in trade, and all costs associated with this dumb tax will be passed on to the consumer.
One thing I appreciate in your post is that this Stimulus is simply not following Keynesian economics. Keynesian was all about domestic income from temporary government expenditures, temporary government spending and also was not applicable when the economy was fully functioning.
What we got was not directly connecting Stimulus to U.S. citizen income by any stretch, i.e. they did not tie jobs to U.S. citizens, keep the expenditures within the U.S. etc.
that's true and it's also true if corporate lobbyists can fiddle with any area of policy....is it tax policy most of all.
On the other hand, the United States needs a major leveler on trade and this is one sure fire way to get it.
The WTO rules against the US and will assuredly not rule against all of these other industrialized nations with VATS (including India).
There is no way by "worker and environmental rights" one is going to really eradicate the wage differential around the globe but this could be quite the tool to help that out.
But firstly is to understand the rebate game (which should also be passed onto consumers btw).
Firstly, I am getting very irritated. Now the point of EP is not to attack first and thing about it later, it is to think first in comments. I'm trying to point out that a VAT, as utilized by the EU, can be one hell of a trade deficit leveler.
So, people quite attacking me and read the links that I'm using to make the case.
Firstly no, very little is made in the United States. Secondly a VAT can be rebated at the import/export level!
That is the point I am making, not misuderstanding the basics on VAT.
I am going off of various recommendations I have already read and the point is to get this rebate that most other industrialized nations get....on exports and imports...
not the actual VAT itself as a concept.
Now these two articles give some good overview on precisely how other nations use their VAT as a trade leveler.
Economy in Crisis VAT action items.
Another article on VAT.
Now you all are just taking one type of VAT but it is one complex tax and it does NOT, repeat, does NOT have to be implemented by the examples you give. Not by a long shot...
See the key for "rebate" and "incentive", which should also be passed onto consumers as the rest of the VAT is.
I read the Choate stuff and am familiar with some of the other VAT (or GST) out there. But, my Patrion Saint of Populism, you aren't seeing the forest from the trees. You're looking at the import goods aspect still and manufacturing jobs. What we're saying is that an implementation of a Value Added Tax on imports will turn out to be the key that opens up Pandora's Box. They give the rah rah speech on "protecting jobs" or domestic industries against "dumping," in the guise of that VAT. But that will be a ruse, and you know the biggest liars in the world are government officials (well after fund managers on CNBC).
It starts with imports, then it will spread to other items. Next thing you know, after the plumber has fixed a leaky pipe (assuming you get one instead of doing it yourself) and on his bill is a VAT portion!
--------------------------------------------
www.venomopolis.com
but you're wrong. While you're saying we're focusing on the consumer, you're only looking at the trade. Do you really honestly believe this will just be on imports? And by the way, until the majority of the stuff that will be slapped with that VAT is made here, you will go through a very long indefinate period of paying high taxes. Secondly, as Bruce smartly pointed out, the rich will not pay this out of their income but the rest of us will. Because at the end of the day, it will not reverse trade deficites entirely or even significantly. Why? Because the costs are passed on to the consumer.
Say you're importing a DVD player, and prior to the vate it cost the importer $15/unit. Let's also assume that his retail price that he thinks the market will bear is double wholesale or $30. Now one of three things will happen here with the VAT. Either it gets slapped on the moment it lands onto shore or when that retail markup is imposed, or what I think is the worst of the two where VAT is utilized on both when it arrives and at the markup. Now, for arguments sake, let's take the worst-case scenario rate that I heard on NPR and CNBC, which was 25%.
So let's review here. DVD wholesale price is $15
Scenario One:
25% VAT import price ($15 + $3.75 VAT) = $18.75
Retail price (double his wholesale cost) = $37.5
Scenario Two:
Import price = $15 (VAT is not applied)
Final Retail Price (double his wholesale + VAT applied only on retail end) ($30 + $7.50 VAT) = $37.50
Scenario Three
25% VAT import price ($15 + $3.75 VAT) = $18.75
Retail price (double his wholesale cost) = $37.5
VAT (25%) applied on final retail value (37.5 + $9.375 VAT) = $46.87
In each case, the retailer or wholesaler passes on the VAT cost to the client. Now I know I'm over simplifying and left out a few things. Also, you could have cases where a business would eat a portion or all of the VAT to gain market share. But I suspect that would not be a long-term plan.
Either way, you could witness the Value Added Tax being applied all along the product chain. You brought up steel, there is nothing to stop provisions being put in place to have VAT ending up all the way to the final product that you buy at the store. From what I have seen, the visibility of this additional tax varies. I have seen some retail operations in Europe display their retail price and then add in "Plus VAT;" resembling possibly scenario two. In other cases, the VAT is hidden.
Once more, this tax encumbrance doesn't even include local sales taxes. Now here in Chicago, whichever VAT scenario is applied, the City (actually Cook County) applies the sales tax on the final value, which stands at 10.25%. So you could actually see a final "sales tax" of 35.25%! Tell me that doesn't hurt the poor or middle class!
Lastly, to assume that this would only apply to imported products is, to say the least, unwise. The government will by like someone who goes to a buffet but has eyes bigger than their stomach, as my mom used to say. The rush of all this cash from VAT will get them thinking "hrmm...we're bringing in all this money on import items, what about domestic products?" Also, given that the service sector is so huge, to the state it will seem as one giant juicy untapped source of revenue.
--------------------------------------------
www.venomopolis.com
if you bothered to read any of my many posts at all, not only have I written in detail on a VAT but I also have lived abroad and I am frankly not in the mood with this tone.
I am pointing out it's overall effects by reducing the complexity because people do not understand how a VAT helps the U.S. trade deficit.
VAT 101.
Its on imported and domestic product impartially, except of course that it magnifies cost differentials.
Where did you get the impression that a VAT is only on imported products? What country in the world has a VAT that is not actually a Value Added Tax but is, instead, a hidden tariff?
And why hide the tariff? If the US wants to impose a non-discriminatory across the board tariff, because of our structural and unsustainable trade deficit, we are well within our rights under the WTO to do so.
... at each stage of production. Imports are assessed the VAT when they come into the country, to bring them to parity with domestic products, and exports are rebated the VAT, leaving it up to the other country whether they want to tax them or not. But it simply is NOT exclusively a tax on imports.
And of course, its the cheaper steal, between US, China, India or Brazil that attracts the lowest VAT.
I was living in Australia when they introduced their VAT (they called it a GST, for Goods and Services Tax, because recent immigrants from Europe were familiar with a VAT, and so the less familiar name was more politically marketable).
I think there is a misunderstanding, this is not an "across the board" sales tax. It's on imports, which levels our domestic goods. It's all about the trade deficit and equalizing that out. People are focused on the consumer, but one needs to think about things like U.S. steel vs. India or China or Brazil steel.
So, think of it this way, it's going to generate more U.S. manufacturing jobs, so it's not the same thing as a "flat tax" or other regressive taxes.
With a lot of Americans unemployed we should send the guest workers home. Obama's priority should be first with Americans and then permanent residents to get jobs.
I think people aren't getting this, a VAT is really a tax on imports. It's a glorified hidden tariff that is legal under the WTO. It's not on domestic or should not be.
Thanks for posting this update. I agree, they will act in concert to rig the game.
And below an exerpt from a featured post by Rolfe Winkler of OptionARMageddon now displayed at naked capitalism:
"During a press conference today, FDIC Chairwoman Sheila Bair was asked about the Journal's report that banks are lobbying to buy assets under Geithner's toxic asset plan, the PPIP.
"She says banks will not be able to bid on their own assets, but clearly leaves open the possibility that they'd be allowed to buy the assets of other banks.
"This is highly problematic. If banks can act as buyers in any capacity, what's to prevent collusion? With just a sliver of equity and a pile of non-recourse federal loans, Citigroup could fund a special purpose vehicle to overpay for BofA's bad assets. In exchange BofA would overpay for Citi's assets. The beauty of using non-recourse debt is that you can walk away from it. The lender, in this case the taxpayer, is stuck eating the loss on the bombed-out asset."
Here any actual thievery would be so blatant that even a cadaver would know that someone had their hand in his pocket. And who could blame the banksters if this little number were acted upon? They'd just be filth doing what filth does: Acting filthy. But someone on the inside, Shiela Bair, is about to unlock the door and disarm the alarm for them. Bair, it is said, just won't rule out zombies buying the drek of other zombies. And this woman the one person in our lobby accomodating financial leadership that one reputedly could look to for a moral compass as the odor of the accumulating sewerage becomes paralyzing? Its like the baby killing Michelle Obama being seen as our First Mother. If this one goes down - and it likely will - all that will remain is Victory Gin and tracing out 2+2=5.
Wealthy people put some of their income into wealth accumulation, with pays VAT at a rate of 0%. Poor people put all their income into consumption, with pays VAT at the face value. So its an income tax that starts at the full face value and declines based on how much money is shifted toward wealth accumulation.
Well, there's also the middle class people paying 29.9% on their credit card because they were late in making a payment ... while the VAT is assessed on actual products, it normally does not involve taxing important things like the Finance Sector.
... don't tax the product in the first place.
That would be the same as taxing the product at every stage in the production from raw material to finished product and then rebating the exports, wouldn't it?
We already have a wide range of sales taxes, and already make exports sales tax free.
Regarding domestic production, the reason VAT was so strongly favored in placed with rampant tax evasion like Italy was that when someone evades the VAT tax system, they only evade the tax due on their value added ... they still paid VAT on the materials / products they used.
It would encourage domestic production because there would be no VAT. At least that's Pat Choate's idea. It's not on domestic goods.
of all the things that need reform. But note, all other countries have a VAT and who is being hollowed out by trade?
The United States. Check out Pat Choate's book, I link to it, and he goes into great detail on why/how it would work and not be as "regressive" as advertised.
The added caveat of having it pay for health care seems to sweeten the pot.
But the biggest thing, it's legal in the WTO. If someone wants to do broad tariffs or even specifics, without plain withdrawing from the WTO it would be challenged and the WTO likes to rule against the United States.
You nailed it. The consumer is already, despite recent released confidence numbers, a wounded animal. You raise prices, you are going to see folks rethink purchases. And like seebert mentioned, this is going to hurt local economies.
-----------------------------------
www.venomopolis.com
The problem with a VAT, near as I can tell, is that even if you refund to domestic producers, you've just added extra overhead that the consumer will eventually have to pay for- the paperwork of doing the VAT.
Worse yet, how will this hit local-only economies whose goods don't cross state borders, let alone national ones? Suddenly every farmer in your local farmer's market is paying VAT to deliver subscription goods to their co-owners? That's a real problem towards rebuilding domestic markets.
I think a lot of people haven't thought this through very well- especially in light of the fact that we could achieve the same effect by simply canceling our stupid trade agreements and not exporting to countries that play the unequal tariffs game.
-------------------------------------
Executive compensation is inversely proportional to morality and ethics.
Forgive me, RO, but while I see your point on the trade thing, it still doesn't past the test. For starters, this will not cause companies to move factory work over here. The cost differential between building widgets in China and the US is still greater than even the 25% rate that I've heard. Secondly, in other places that have a VAT, you haven't seen trade deals renegotiated or as such. At the end of the day, it is what it is, a heavily regressive tax. Wealthy people will game this like they did when they imposed taxes on yachts, they went elsewhere for the boats.
Who gets hurt those most will be folks like you and everyone else who have to purchase consumer staples. Now one thing I've heard was that certain items would be excluded, but I am very skeptical that it would remain so. If you rebate the money (a la the Neal Bortz model of his national sales tax), that will invite more hassle a kin to what we do for our income tax, only this would be added to the former. On top of this, if you live in a state with a sales tax, then its almost a double whammy. Here in Cook County, home to Chicago, the county sales tax alone is about 10%. The city of Chicago has additional taxes based on what you buy. So really, assuming it's the 25% that I've heard, your tax liability here will be at least 35% of your total bill.
Also do you really believe it would be just on products? Mark my words, you will see a VAT on services as well. Yes, you may see some stuff made here, and you know what I would be happy to have my next gizmo made in America. But I am highly doubtful the full benefits foretold on your article will come to fruition. Bottom line, there won't be any real change in trade, and all costs associated with this dumb tax will be passed on to the consumer.
www.venomopolis.com
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