The Value Added Tax - How does it compare to the FAIRtax?
The FAIRtax is a tax on the purchase of new goods and retail services collected when the retailer sells to the consumer.
The value added tax (VAT) is a tax that is calculated and paid at each step in the production process of goods and services.
The Tax Foundation reported that: The United States relied much less on consumption taxes than other OECD countries. Taxes on goods and services accounted for only 17.6 percent of total tax revenue in the United States, compared to 32.1 percent in the OECD. This is because all OECD countries, except the United States, levy value-added taxes (VAT) at relatively high rates.
There are two types of VAT—the Credit Invoice VAT which is used by most countries and the Subtraction Method VAT which is used only by Japan. Here is a description of each type.
Credit Invoice VAT
Each time a business sells a product it calculates the VAT by applying the VAT percentage to the sales price and deducting any VAT previously paid in the production chain up to that point. To get the credit for VAT previously paid, all businesses must provide invoices showing the VAT paid when they sell the product.
The U.S. Chamber of Commerce published An Introduction To The Value Added Tax and included this example assuming the VAT rate is 10%, the final sales price to the consumer is $500 and the total VAT owed is :
- Wheat Farmer grows, harvests, and sells wheat to Miller for $50, paying a $5 VAT (10% x $50 sale price).
- Miller processes the wheat into flour and sells it to Baker for $150, paying a VAT of $10 [(10% x $150 sales price =$15) minus credit of $5 paid on previous business inputs by Wheat Farmer, as reflected on the invoice received].
- Baker bakes the wheat into bread and sells it to Retailer for $300, paying a VAT of $15 [(10% x $300 sales price = $30) minus inputs credit of $15 paid on previous business inputs paid by Wheat Farmer and Miller].
- Retailer sells the bread to consumers for $500, paying a VAT of $20 [(10% x $500 sales price = $50) minus inputs credit of $30 paid on previous business inputs paid by Wheat Farmer, Miller, and Baker].
Subtraction Method VAT
Under this method, a business pays the VAT on the difference between the businesses’ sales and the amount of the purchases made to produce the products that were sold.
Here is the example from the Chamber of Commerce paper referenced above:
Similarities
Both the FAIRtax and VAT:
- Are border adjustable because they only tax consumption in the country in which the products are produced. Exports don’t include the tax.
- Imports are fully taxed and don’t provide an incentive to produce products outside of the country, unlike the income tax.
- Both plans require the businesses purchasing from other businesses to keep records showing either an exemption from the FAIRtax or invoices showing the amount of VAT paid earlier.
- Are consumption taxes that don’t penalize earnings and investments by their citizens.
- Don’t require individuals to file tax returns.
- The FAIRtax/VAT amount can be shown on each consumer purchase or can be included in the price of the consumer good.
Differences
- Under the VAT, all businesses must calculate and pay VAT.
- Under the FAIRtax, only retail businesses collect the tax from purchasers and remit the tax to their government.
- A VAT requires the IRS or a similar agency to administer and enforce it.
- The FAIRtax is collected by the states and remitted to the federal government. No administration or enforcement is required at the federal level.
- Under the FAIRtax, evasion is much more difficult given that over 90% of the sales of new goods are made by less than 10% of the retailers.
- Under the VAT, evasion is easier because businesses can either pay partly in cash for goods and sell goods for some cash and some check or get false invoices that they can credit against VAT owed.
CONCLUSION
Forty years ago, the VAT was considered more easily monitored and collected than a retail sales tax. At that time, most retail sales were done primarily by large numbers of small businesses that were not using electronic cash registers running point of sale software. A lot of manual accounting was required giving rise to inaccuracies and opportunities for evasion.
This is no longer the case.
In the U.S., over 90% of the retail sales are done by less than 10% of retailers using sophisticated inventory and sales programs.
Both the VAT and the FAIRtax eliminate filing of personal returns but the VAT requires an enforcement agency like the IRS.
Congress is now listening. Many are concerned about the growing upset with the present income/payroll tax and the growing support for the FAIRtax.
This was very obvious during our testimony before the Ways And Means Committee in December.
The choice is easy—do we want a system for funding the federal government:
- That is so simple everyone can understand it.
- That shows the costs of the federal government on every retail receipt so all of us understand what we are paying.
- That helps U.S. companies compete with foreign competitors.
- That keeps jobs in the U.S. rather than exporting them to other countries.
- That permanently makes Social Security and Medicare solvent.
- THAT IS THE LARGEST TRANSFER OF POWER FROM D.C. TO THE PEOPLE SINCE THE CONSTITUTION WAS ADOPTED.
D.C. is ignoring the one real solution that allows us to remain citizens and not subjects, the FAIRtax. The FAIRtax is simple, non-invasive, but most of all, IT WORKS!
THE SOLUTION—PASS THE FAIRTAX!
The FAIRtax transfers power from Congress and the bureaucrats to the people. We, not D.C., decide how much federal tax we pay.
Join us and TAKE BACK CONTROL OF OUR COUNTRY AND OUR LIVES—NOT WITH BULLETS BUT WITH THE ELIMINATION OF ONE OF THE BIGGEST THREATS TO OUR LIBERTY AND ECONOMIC PROSPERITY—THE INCOME/PAYROLL TAX.
We all should remember Edmund Burke’s warning that applies to our efforts to TAKE BACK CONTROL,
“Nobody made a greater mistake than he who did nothing because he could do only a little.”
Please go to this link to invest in AFFT. It’s an investment in your and your family’s future.