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.

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.

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www.venomopolis.com

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.

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.

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.

... 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.

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.

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.
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Executive compensation is inversely proportional to morality and ethics.