The Future of the Obama Presidency

Well at least this isn't starting an unnecessary and wasteful war...

It's just taxes for God's sake!

Sounds like Hopey doing his usual professorial "I think about everything before I decide" statement, really, but of course, I'm willing to cut him more slack than some.
Here's Geithner walking it back as well:
http://thehill.com/blogs/blog-brief...ner-obama-does-not-support-the-vat-for-the-us
This source says it's Comrade Pelosi who wants it left on the table.
Would anyone like to explain just exactly what a Value Added Tax is and does for my financially challenged brain? I could go read about it, but aside from the effort of trying to understand the foreign language of math-speak, I'm headed out the door atm.

You start with a lump of steel worth $X. You carve the lump of steel into some useful configuration. Theoretically (as determined by some bureaucrat that couldn't find your plant, let alone understand your product and process and customers), somebody would now pay $X+5 for the improved lump of steel. Please send 5x10%=$.50 to Barack. Next, you paint the part. Washington Pencilneck says somebody would now pay (X+5) + $2 for the painted improved lump of steel. Please send 2x10%=$.20 to Barack. Next, you put a pretty sticker on the part. Mr. Pencilneck (who still can't find your plant) decides that somebody would now pay (X+5+2) + $27 for your stickered painted improved lump of steel (evidently, that sticker is TEH AWESUM!!!11! in the eyes of Mr. Pencilneck, or maybe he's just under orders to raise extra revenue to cover Obamacare…it's just so hard to tell doncha know). Please send 27x10%=$2.70 to Barack. So we're sitting at $3.40 that you owe Barack. Oh, you made 100 of those parts today? Cut that check for $340, if you please. So, what are you going to do? Raise your price right about $3.40, eh? So who pays? You betcha.

It's just an indirect, underhanded sales tax with rates anywhere from 3% to 25% (going by Euro countries that already use it). It's politically easier to sell because it's those evil corporations that get hit directly, and most people won't make the connection until their grocery bill is magically 20% higher than it used to be. Somehow, lefties love it, even though most studies show that sales taxes (which is what this functionally ends up being) hit poor people harder than the rich.

dteowner said:

Somehow, lefties love it, even though most studies show that sales taxes (which is what this functionally ends up being) hit poor people harder than the rich.

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Yes and no, in the UK at least there's exemptions for food, utilities and childrens clothes, so since a higher proportion of poorer families' income is spent servicing those basic needs it does proportionally provide a bigger hit on the rich.

Personally it's a tax I favour (although not a lefty), it's not as progressive as many other taxes and does end up being fairly discretionary. If budgets are tight you can just stick to the basics and be unaffected by it, if you want to actively consume you pay a bit more. I'm rooting for VAT to go up all the way to 22.5% after the election.

Surprised that America doesn't actually have any VAT anyway.

Most states have a direct sales tax. They usually (maybe all of them, I've never checked states outside of the 3 I've lived in) exempt food but nothing else.

Since Washington (particularly under the current administration, and, to be fair, under Dumbass Dubya) simply can't reduce spending, the only option to deal with our budget problem is to raise taxes. Given the "popularity" of the income tax and the current fragility of business, the only politically viable tax is one that corporations have to pay but that they can easily pass along to consumers. Thus, enter the VAT. Barack and Pelosi-ov will soft shoe all around it for a while to give the public time to get used to the idea without having to directly own the idea (just in case the public decides to hate it). Depending on the outlook for midterms and their ability to spin the "evil corporation" angle while hiding the sales tax reality, I could see them springing the trap shortly before November, or waiting until late 2011.

VAT is a very annoying tax, but it is usually passed on to the end consumers as VAT is deductible for businesses. The net effect is a hefty sales tax and a lot of bookkeeping fuss for companies...

dteowner said:

You start with a lump of steel worth $X. You carve the lump of steel into some useful configuration. Theoretically (as determined by some bureaucrat that couldn't find your plant, let alone understand your product and process and customers), somebody would now pay $X+5 for the improved lump of steel. Please send 5x10%=$.50 to Barack. Next, you paint the part. Washington Pencilneck says somebody would now pay (X+5) + $2 for the painted improved lump of steel.

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Not sure how it works in Europe but in Australia GST is based on how much you sell it for - so if you start with a lump of steel worth $X and sell for $X+5 the tax is ($X=5) x tax rate however you don't pay tax on your inputs so you take the GST included in the cost of your lump of steel off what you pay and only send the tax office the net amount.

Yea, that's the way I thought VAT works in Europe, too. Thus the name "value added"….

What i hate most about these taxes is that they apply to services as well as goods. If I have to pay a mechanic $60 an hour to fix my car, he actually has to charge me $66 an hour-$60 for him and $6 tax @10% for the gov't!!

That's how it has been in California since before my time and it still has massive budget woes. On top of that cities usually add a percent or two for themselves. But unlike VATs, the tax is on the whole price, not just the value added profit. So as a product goes through mill the taxes are compounded more.

At 8.25%, California has the highest state sales tax, which can total up to 10.75% with local sales tax included.

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V7 said:

Not sure how it works in Europe but in Australia GST is based on how much you sell it for - so if you start with a lump of steel worth $X and sell for $X+5 the tax is ($X=5) x tax rate however you don't pay tax on your inputs so you take the GST included in the cost of your lump of steel off what you pay and only send the tax office the net amount.

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In my example, Barack never got a cut on the $X, and in fact didn't get "compounding" either. I think you're agreeing with me.

Reread yoru exmaple and yes, just confused by the way you wrote that - if its just a single company you only pay the tax at the end of the process not every step of the way through and Mr. Pencilneck doesn't get involved at all except to cash the check your accountant figures out from the sale price of the goods you sell (and of course to audit you now and then to make sure you're not cooking the books and siphoning off cash to fund the local Republican orphan roasting facility on the side )

and usually they get a cut of the X when its produced - so you dig up a lump of metal worth X, sell it for X x 1.1 and give the governemnt X x. 1 less your costs of digging it out of the ground.

Corwin said:

What i hate most about these taxes is that they apply to services as well as goods. If I have to pay a mechanic $60 an hour to fix my car, he actually has to charge me $66 an hour-$60 for him and $6 tax @10% for the gov't!!

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I'm surprised that the services thing doesn't actually make things worse, there's a lot of services where avoiding VAT just pushes everyone into the black market with cash payments and must kill overall revenues.

Thanks for explaining both the mechanics and sneaky logic of the VAT for me, guys. Frankly, I'd rather see something like this than income tax increases, but I can see it might be an accounting nightmare for business--much like the payroll tax system is today. Nonetheless, getting serious about paying for what government does is important, and there's only so many cuts in defense and discretionary spending you can make; this could be one component of reducing all the debt and deficit.

I'm adamantly opposed to the VAT tax. I think it's just insulting to even discuss the matter when unemployment is through the roof, and prices for goods is (food inflation is at a 26 year high):

http://www.prnewswire.com/news-releases/us-food-inflation-spiraling-out-of-control-91848684.html

I REALLY don't like this administration. People can make fun of the Tea Party movement all they want, but I'm pretty certain nobody on the left is going to be laughing after the November elections.

But regarding VAT, the whole discussion is kind of a pipe dream for liberals, because it probably wont be voted on before November anyway, so effectively it's dead in the water.

Sir Markus said:

I'm adamantly opposed to the VAT tax. I think it's just insulting to even discuss the matter when unemployment is through the roof, and prices for goods is (food inflation is at a 26 year high):

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Food tends to be exempt, so VAT is largely levelled on discretionary spending.

Clothing and utilities are not generally considered discretionary, but they are subject to sales tax, so presumably they'd get hit by a VAT as well.

dteowner said:

Clothing and utilities are not generally considered discretionary, but they are subject to sales tax, so presumably they'd get hit by a VAT as well.

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Children's clothing & utilities are exempt over here, and I'd have thought clothing in general had been so massively deflationary over the last couple of decades with all those nimble sewing fingers in China that a bit of inflation there wouldn't be too bad.

What kind of a bump is being suggested anyway? In the UK it is one of the bigger winners IMO, raises far more than any other viable tax rises and tends to be fairly unnoticed unless people really watch prices heavily.

I don't think it's gotten to the point of defining a rate yet. Barack and Pelosi-ov are basically floating easily distanced trial balloons about the idea to see how pissed off people will get (IMO, of course). If people figure out the effect it will have, Barack will claim he's never even seen the letters. If people can't be bothered for more than a "whatever", he'll try to quietly jam it thru.

magerette said:

but I can see it might be an accounting nightmare for business

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Its not really unless ther really screw up writing the law - in Australia its just a case of adding up your purchases subject to GST and your sales subject to GST dividing both by 11 (to find the 10% tax) subtracting the GST paid on imputs from the GST recieved on sales then sending the government the difference (or getting a refund if you spent more than you sold). If you're running a business you need to keep track of your costs and sales anyway and the GST reporting is (worst case) a form that takes about 20 minutes mailed in quarterly to (best case) an online submission completed yearly.