Does Everyone Understand the Difference Between a VAT and a Retail Sales Tax?

Nerds 4 Cain ^ | 10-14-11 | OnTheOppositeShore

[Brookhaven]

It seems that the 999 plan is receiving a lot of unfair criticism, because many people don't understand the difference between a value added tax (VAT) and a retail sales tax. I'm going to try and describe the difference here, using the milk supply chain as an example.

A retail sales tax (this is what is in the 999 plan)

1. A dairy farmer sells their milk to a processor. No taxes are levied or added to the price of the milk.
2. The processor sells the milk to a wholesaler. No taxes are levied or added to the price of the milk.
3. The wholesaler sells the milk to a grocery. No taxes are levied or added to the price of the milk.
4. The grocery puts the milk on the store shelves. No taxes are levied or added to the price of the milk.
5. A parent buys the milk to put on their cereal at home. At the cash register, a sales tax is levied on the price of the milk. The sales tax shows up as a separate line on the cash register receipt.

The one and only place where a tax is levied on the milk is after it has reached the cash register for it's final purchase before being consumed—a retail purchase.

From a conservative standpoint, the great advantage of a retail sales tax is that it is 100% visible. The tax payer can easily determine how much they are paying in taxes.

A VAT (value added tax)

1. A dairy farmer sells their milk to a processor. A tax is levied on the milk, and it is embedded in the price the farmer charges the processor.
2. The processor sells the milk to a wholesaler. Again, a tax is levied on the milk, and it is embedded in the price the processor charges the wholesaler.
3. The wholesaler sells the milk to a grocery. For a third time, a tax is levied on the milk, and it is embedded in the price the wholesaler charges the grocery.
4. The grocery puts the milk on the store shelves. For the fourth time, a tax is levied on the milk, and it is embedded in the price of the milk displayed on the shelf.
5. A parent buys the milk to put on their cereal at home. At the cash register, no taxes are levied on the milk. The four taxes that have already been levied on the milk do not show up as a separate line on the cash register receipt.

With a VAT, every time a product or raw material changes hands it is taxed, and the tax is embedded in the price of the item. If it changes hands five times before it reaches the consumer, it is taxed five times. If it changes hands 100 times before it reaches the consumer, it is taxed 100 times.

Conservatives are right to abhor a VAT.

A VAT is a hidden tax. The consumer never knows for sure how much in taxes they are paying, because the tax is embedded in the price of the product. That, of course, is why governments love the VAT. Voters are less likely to complain about a tax when it is difficult for them to determine exactly how much they are paying in taxes.

A VAT creates a paperwork nightmare for businesses as they have to keep track of the taxes that have been paid on items and raw materials all along the production process.

It's not surprising that Europe (which has a bias towards high taxes) prefers a VAT, because it is a hidden tax and thus easy to raise. While the USA (which has a bias towards low taxes) prefers to implement retail sales taxes, because it is a highly visible tax and thus difficult to raise.

I hope this makes the difference between a VAT and a retail sales tax clear. They are very different animals.

The Herman Cain 9-9-9 plan implements a retail sales tax. In no way, shape, or form does it implement a VAT.

[txroadkill]

5.A parent buys the milk to put on their cereal at home. At the cash register, a sales tax is levied on the price of the milk. The sales tax shows up as a separate line on the cash register receipt.

Except in Texas, there is no Sales Tax on food items. With Cain's plan there would be.

For most of my employees the only taxes they pay are state sales taxes, state property taxes, federal sales taxes on gas, etc. and SS. because they have enough deductions. That's OK with me, because I pay enough for all of them. Now they will take a hit.

So now I have to raise my employees' pay because they don't see the big picture, they see their pay drop and groceries and everything else go up or I lose them to someone who will pay them more.

I'll grant you it is a good idea on paper, a lot of Conservatives like it because most of us pay taxes and it makes everyone else put skin in the game.But the reality is I depend on people who don't want to have skin in the game because they don't make enough.

You want to help me, a tax payer, STOP SPENDING MY MONEY, get the government out of my life and turn the energy back on. Businesses will grow creating more wealth and then I can raise my employees' pay because my business is making more money and then they will have skin in the game.

You can keep your 999, it's a tax plan not a jobs plan.

[Brookhaven]

So, are you saying the new 9% Federal sales tax will be printed out on your sales receipt at point of sale so you can account for how much Federal Sales Tax you paid all year long?

As a matter of fact, yes. If you keep your receipts you'll be able to track to the penny how much you paid in federal sales tax during the year.

[E. Pluribus Unum]

Qustion: What is the difference between a VAT and a corporate income tax?

Answer: Nothing

Aside from that, Congress will NEVER repeal a single tax. Ever. Never have. Never will.

We'll just wind up with a national sales tax on top of the income tax.

Repeal the income tax first, and we can talk.

[ngat]

You didn’t answer the question, did you.

[MNJohnnie]

They know the difference, they are just choosing to lie about it.

[dirtboy]

Does everyone understand the difference? Of course not, and the MSM is encouraging confusion.

So are a lot of Perry supporters on FR as well.

[MNJohnnie]

Which is an abrusd complaint.

Congress can simply raise the existing tax rates any time they want. Changing over to a more broad based tax in exchange for eliminating all the current corrupt gimmicks, loopholes and double taxation in the current code is something anything thinking Conservative should before.

This “new tax” attack line is a total lie. There is no new tax, there is simply a replacement for existing taxes.

[MNJohnnie]

Which is an absurd complaint.

Congress can simply raise the existing tax rates any time they want. Changing over to a more broad based tax in exchange for eliminating all the current corrupt gimmicks, loopholes and double taxation in the current code is something anything thinking Conservative should before.

This “new tax” attack line is a total lie. There is no new tax, there is simply a replacement for existing taxes.

[MNJohnnie]

Which is an absurd complaint.

Congress can simply raise the existing tax rates any time they want. Changing over to a more broad based tax in exchange for eliminating all the current corrupt gimmicks, loopholes and double taxation in the current code is something any thinking Conservative should before.

This “new tax” attack line is a total lie. There is no new tax, there is simply a replacement for existing taxes

[EGPWS]

The problem is THEY WILL NEVER STOP THE INCOME TAX.
So you will just get an additional tax. End of story.

You're being a bit of a cynic aren't you?

After all, there has been several times where taxes have been rescinded!

Oh, wait a minute, maybe not....

As a matter of fact I am still waiting for the temporary sales tax to pay for building the sports dome in Minneapolis to be rescinded from about 25 years ago and they are already looking to build another sports dome.

Nope, you are right, once a tax is there it is ALWAYS there!

The name may change, the amounts may be shifted around, but they are ALWAYS there.

[MNJohnnie]

Sorry you are dead wrong in your analysis. Under 9-9-9 all Business purchases, including those for investment goods, are tax exempt.

[MNJohnnie]

Which is an absurd complaint.

Congress can simply raise the existing tax rates any time they want. Changing over to a more broad based tax in exchange for eliminating all the current corrupt gimmicks, loopholes and double taxation in the current code is something any thinking Conservative should be for.

This “new tax” attack line is a total lie. There is no new tax, there is simply a replacement for existing taxes

[MNJohnnie]

what are you paying now in income tax and hidden business taxes?

45 to 60% of your income depending on your tax bracket. Can you add and subtract?

[Christian Engineer Mass]

No, this is what we call fighting back.

[rolling_stone]

You didn’t answer the question, did you.

Yes I answered the question, I told you where to look for the answer. Do you think for one second a retailer is going to charge you a tax and not put it on a receipt? How about their competitors?

http://www.fairtax.org/site/PageServer?pagename=about_glossary

Hidden taxes:
A hidden tax is one that is not explicitly clear to the taxpayer. Sales taxes are not considered to be hidden taxes, because the tax is clearly indicated on cash register receipts. When the government imposes taxes on businesses the potential responses include (1) raising prices, (2) lowering dividends to shareholders, and (3) reducing wages and benefits or capital investment. Under any of the three options, Americans end up paying the tax either through lower wages if they work for a corporation, poorer performance if they own a mutual fund, or higher prices when they buy a product. But this tax burden doesn’t show up on any pay slip or price tag.

[ngat]

Shouldn’t be too hard to see how much Mr. Cain’s new tax costs me then. I’m really looking forward to paying an extra $5,850.00 on that brand new diesel dually pickup I need that I’ve been holding off buying for the last four years.

[I am Richard Brandon]

A VAT (value added tax)

A dairy farmer sells their milk to a processor. A tax is levied on the milk, and it is embedded in the price the farmer charges the processor.
The processor sells the milk to a wholesaler. Again, a tax is levied on the milk, and it is embedded in the price the processor charges the wholesaler.
The wholesaler sells the milk to a grocery. For a third time, a tax is levied on the milk, and it is embedded in the price the wholesaler charges the grocery.
The grocery puts the milk on the store shelves. For the fourth time, a tax is levied on the milk, and it is embedded in the price of the milk displayed on the shelf.
A parent buys the milk to put on their cereal at home. At the cash register, no taxes are levied on the milk.

The four taxes that have already been levied on the milk do not show up as a separate line on the cash register receipt. With a VAT, every time a product or raw material changes hands it is taxed, and the tax is embedded in the price of the item. If it changes hands five times before it reaches the consumer, it is taxed five times. If it changes hands 100 times before it reaches the consumer, it is taxed 100 times. Conservatives are right to abhor a VAT. A VAT is a hidden tax. The consumer never knows for sure how much in taxes they are paying, because the tax is embedded in the price of the product. That, of course, is why governments love the VAT. Voters are less likely to complain about a tax when it is difficult for them to determine exactly how much they are paying in taxes. A VAT creates a paperwork nightmare for businesses as they have to keep track of the taxes that have been paid on items and raw materials all along the production process.

This description of VAT is GROSSLY misleading. Yes, VAT is levied on the Value Added at each transaction; there is a minefield of paperwork; and there are the 'VAT inspectors'.. Someone needs to post a concise, and correct explanation. Include information about the paperwork involved and the ARMY of VAT inspectors with non-Constitutional powers at least equal to the IRS.

[MNJohnnie]

So, are you saying the new 9% Federal sales tax will be printed out on your sales receipt at point of sale

Yes.

[Sapwolf]

Nice write-up of the differences.

I’m in the middle of a new SAP implementation and we are also implementing the Vertex sales/use tax system.

I’m hoping Cain’s 9-9-9 actually could be a bridge to the Fair Tax, or a national retail sales tax with the phase-out of income/production type taxes.

Call it......20-0-0 Tax Plan of Sapwolf.

[Sapwolf]

I like the 9-9-9 because it could be that bridge to the Fair Tax or a phasing in.