What the VAT!?

By Greg Autry, CPA Economist

I was working on an updated  map of nations that use a Value Added Tax (VAT) for the Coalition for a Prosperous America and thought I’d share it. Nations in RED have a VAT. Nations in BLUE don’t.

Basically, the VAT is a national sales tax on products sold, at various levels in the value chain. It varies from country to county in actual rate and implementation and it is pretty complex to really figure out who has one and who does not. Mostly it is just the US, big oil producers in the Middle East (Places like Iran, Saudi Arabia, Syria don’t make much of their own consumer goods and keeping their citizens docile depends on cheap imported stuff), island tax havens like the Caymans, and some semi-lawless places like Western Sahara, Angola and Burma. Odd bedfellows we have no?

Why does this matter?

Well it matters, because most countries tax U.S. products (and other imports) coming in with their VAT and then EXEMPT or REBATE taxes on their exports. (You may have experienced this as a consumer in some countries where you can collect your receipts and get money back as you exit the country.) Well managed, by a smart country, the VAT can act as both a tariff and a subsidy.

In China’s case that’s a 17%+ (more with local and provincial taxes) whack on U.S. made products. Since, as you can see from the map, everyone in the WTO is playing this game, nobody is going to back up American complaints about this process. While most academic free traders bristle at tariffs, they seem to hardly blink an eye at the VAT scam.

That is one of the very good reasons we should consider replacing our national income tax with a VAT. A tax is a disincentive for the activity it taxes and an income tax, particularly the corporate one, is essentially a distinctive for production. A Chinese style VAT is a disincentive for importation. If we have to disincentive something, I’d rather it be consumption than production. Despite what most economists and our government seem to believe, no nation has ever consumed its way to prosperity!

So, if we can’t beat ‘em, we should join ‘em. Let taxes be laid on imported Chinese junk and not be firms doing business in America or the wages American workers earn. Taxing imports is how the U.S. raised almost all our federal revenue during the first 150 years of our history and if we hide it in VAT, like all most of our “trading partners”, apparently nobody will notice or complain. (Actually, when America finally gets wise, I’m sure it will become a serious negotiating point, but that is another story.)

Greg Autry serves Senior Economist with the American Jobs Alliance and is co-author (with Peter Navarro) of Death by China: Confronting the Dragon – a Global Call to Action.

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