Obama suggests value-added tax may be an option

[Syt]

Is there any difference to the consumer between sales tax and VAT? As far as I can tell, that's not the case...

Err, VAT is a type of a sales tax. 

Yeah. A compounding one that charges the end consumer all of the tax cost of every transaction that happened before his.

As I said, people here do not understand VAT (and the concept of VAT deduction). Your post shows why this is the case.

If you can show me one country where VAT works the way you describe, I will withdraw my objection (hint: it will definitely not be any EU country).

Well, technically, the EU VAT is a consumption tax (in German Mehrwertsteuer vs. Umnsatzsteuer), but the result in practice is (with some exceptions) the same:
Businesses have the VAT they paid reimbursed by the state while paying the VAT on their sales to the state.

Example: You buy from your supplier something for 120 EUR (including 20 EUR VAT) and re-sell for 132 (including 22 EUR VAT): Your tax debt to the state is 2 EUR, for the 10 EUR of value you "added". The consumer carries the full VAT that is on a product (though of course it's owed by the business making the final sale, not the consumer), though the state (de facto) gets it in bits and pieces from all the previous links in the supply chain.

[grumbler]

We have both income tax from around 16% upwards, and 20%-25% VAT

How do you pay for something that costs, say, 4.23 goats (vat incl)?

[Zanza]

We have both income tax from around 16% upwards, and 20%-25% VAT

How do you pay for something that costs, say, 4.23 goats (vat incl)?

The .23 will be paid in beets.

[viper37]

Yeah. A compounding one that charges the end consumer all of the tax cost of every transaction that happened before his.

Don't know much about the European's VAT, but in Canada, the Goods and Services Tax (GST) as well as Provincial Sales Tax (PST) are deductible for registered companies so the consumer only pay the tax on the added value of the product.

If my costs to build you a house are of 450 000$ and I'm selling the house for 500 000$, you pay the tax once on 500 000$, not on every single product that entered there.

I myself will be paying 2500$ (25k$ tax - 22.5k$).

The only problem I can see is implementing this in time of recession.  That's going to hurt.

[viper37]

Well I have no hard data in front of me, but my gut feeling is that in order to recoup lost tax revenues from scrapping income tax except for the 'very richest', wouldn't the VAT have to be set at extremely high levels?  And that would, of course, come with its own set of disincentives, e.g. reducing consumption.

No, not extremely high levels, because you tax basically everything that you buy.

When GST was voted in Canada, it was set at 7%, as a temporary tax until the deficit was eliminated.  The Liberal Party promised its abolition 2 elections in a row but never touched it.
The new Conservative governement has lowered it to 5%.

If it was only the federal tax, it wouldn't be so bad.  But Quebec is taxing the federal tax with its own tax (7,5% now, 9,5% in 2 years) and that hurts when combined with the rest of our silly fiscal policies.

The tax can be modulated in various ways to avoid its regressive impact.  You can remove the tax for basic products (non commercial rents, used houses, milk, meat, non prepared food products, etc) and you can also give a credit to lower income families/individuals.

[viper37]

There are talks here to switch to a VAT system which, according to many economists, is much simpler to operate and more fair for the populus...  It does seem that taxing consumption is indeed fairer since you have a choice to consume or not whereas taxing income leaves one with no choices.  But I'm no economist so I can't really comment further.
G.

it's a different system.  It's not better nor worst, because eventually, there are exceptions & refunds for some people, as well as there are ways to avoid most of it if you're a tad clever&dishonest.  Wich I would never recommend to anyone, of course.

You can avoir income tax by working "under the table", or performing any activity linked to black market (drugs, racket, etc), but it's tricker to avoid sales tax, so usually many economists believe it's a smart way to avoid losing money to the subterranean economy.

When it was first implemented, the GST was the tool of the Devil for most of the left since it was considered to be a "regressive tax", i.e. you make 30k$ a year or 3 million a year you pay the same percentage of tax.
Now, funnly enough, the left wants higher sales tax as well as higher income tax - for the rich only of cours, wich means anyone above 50k$.

[viper37]

You do have a choice when it comes to buying your 3rd car, your 5th blue ray player and all that excessive crap though.  Presumably the essentials are less taxed than the luxury items? 

most people don't have a choice in buying a car or two though.

The point of any sales/VAT/GST taxe is to either tax or not tax, not multiply the rates.

Say you don't tax food wich is considered essential, and you don't tax residential rents.
A rich person will usually eat more than the poor one.  In fact, the poor one may end up consuming more refined products (chicken wings, salted peanuts, chicken nuggets, frozen products, etc) than the rich one who could afford to have time to cook, or the very rich who could afford a cook.

When it comes to rent, a typical appartment in Le Vieux Québec will cost twice more than one in Limoilou (poorest place in the city), so the rich is getting off easy on this one because we don't want to penalize the poor.

There's no easy way to tax, all taxes hurt, all taxes add a burden on the middle class.  The very rich can afford to pay more taxes and still have a decent living, the poor will pay very little or no taxes be it on income or sales tax with the refund we give them.

Abolishing the govt isn't an option for anyone but the nutcases who'd rather live in chaos than pay their due to society.
G.

the idea is tempting, though

[DGuller]

Say you don't tax food wich is considered essential, and you don't tax residential rents.
A rich person will usually eat more than the poor one.  In fact, the poor one may end up consuming more refined products (chicken wings, salted peanuts, chicken nuggets, frozen products, etc) than the rich one who could afford to have time to cook, or the very rich who could afford a cook.

When it comes to rent, a typical appartment in Le Vieux Québec will cost twice more than one in Limoilou (poorest place in the city), so the rich is getting off easy on this one because we don't want to penalize the poor.

You seem to be completely missing the point that the rich will be spending much lower percentage of their income on necessities, and thus if VAT is excluded on necessities, that would make for a progressive taxation system.  Progressivity is defined in percentage terms, not absolute terms.

[Barrister]

When GST was voted in Canada, it was set at 7%, as a temporary tax until the deficit was eliminated.  The Liberal Party promised its abolition 2 elections in a row but never touched it.
The new Conservative governement has lowered it to 5%.

To be fair to Mulroney, he said no such thing.  It replaced another tax, the Manufacturers Sales Tax (or some such name), and was supposed to be 'revenue neutral', but it was never said to be a temporary tax.

And some places dont' have any provincial sales tax to add on to the 5%.

[Neil]

And some places dont' have any provincial sales tax to add on to the 5%.

Word.

[Baron von Schtinkenbutt]

There are sales taxes. Like Texas doesn't have a state income tax, so it has sky high property taxes and 8.25% sales tax because it tricks Conservatives into thinking they have low taxes. DERP HERP INCOME TAX EVIL DERP.

Austin takes a 6.25% sales tax.  Period.  The other 2% plus all your property taxes go to your county and other local tax districts.  So if your property taxes are sky high, blame the city and the county.

[Alatriste]

Say you don't tax food wich is considered essential, and you don't tax residential rents.
A rich person will usually eat more than the poor one.  In fact, the poor one may end up consuming more refined products (chicken wings, salted peanuts, chicken nuggets, frozen products, etc) than the rich one who could afford to have time to cook, or the very rich who could afford a cook.

When it comes to rent, a typical appartment in Le Vieux Québec will cost twice more than one in Limoilou (poorest place in the city), so the rich is getting off easy on this one because we don't want to penalize the poor.

You seem to be completely missing the point that the rich will be spending much lower percentage of their income on necessities, and thus if VAT is excluded on necessities, that would make for a progressive taxation system.  Progressivity is defined in percentage terms, not absolute terms.

Man, 30 years after introducing VAT in Spain many self-defined 'experts' keep missing this point. I don't know if they are just that blind or the problem with them is bad faith.

[Threviel]

I pay about 30% municipal income tax and 25% VAT. When I finish my studies I will become a high earner and therefore pay up to an additional 20% income tax to the state.

Welcome to the workers paradise that is Sweden. 

[Jaron]

Is it true in Sweden every man gets twenty virgins?

[Threviel]

Only every twentieth man.

And I forgot, the employer pays about 30% of my salary as an employers fee to the state.