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The Coming VAT

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gags

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The politicians and their willing accomplices in the media are starting to float the idea of a national Value Added Tax, or "VAT", to extract more wealth from the American economy. Of course, we can’t continue to run annual government deficits well in excess of a trillion dollars and the only way to pay for this kind of massive overspending is through a broad based tax like the VAT. Predictably, the New York Times leads the way with a recent article that deals favorably with the idea of a VAT:

“We have to start paying our bills eventually,” said Charles E. McLure, a tax economist who worked in the Reagan administration. “This strikes me as the best and most obvious way of doing it.”

The favored route of economists is known as a value-added tax, which is a tax on goods and services that is collected at every step along the production chain, from raw material to a consumer’s shopping bag. Similar to a sales tax, it generally results in consumers paying more for the things they buy. The revenues could be used to pay for health care or other social programs, or just to pay down existing debt.

http://www.nytimes.com/2009/12/11/business/11vat.html?_r=1&hpw

The NYT isn’t the only place where there is talk of a VAT. Quite a few business executives see this coming as well:

The prospect of the enactment of a value-added tax in the United States is getting closer – five years and counting, according to a Tax Governance Institute survey.

More than half of the senior business executives surveyed by TGI expect some type of value-added tax to be introduced in the United States within five years. In fact, 57 percent of the executives in the survey said they believe VAT legislation will be introduced within five years, while 18 percent expect it within 10 years.

The huge increase in government spending coupled with diminishing sources of revenue makes it increasingly likely.

http://www.webcpa.com/news/VAT-Coming-to-US-52704-1.html

So hold onto your pocketbooks, the latest money grab is being designed right now by your elected representatives in Washington D.C. :dough:

Edited by gags
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That's one of the beauties (from the perspective of a statist) of the VAT. It gets collected along the production process, so it's more than just a national sales tax. It will be very hard to avoid. Many of the European countries have VATs, so I can hear the arguments already: "The US is the only developed country without a VAT...."

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Seeing how very little is produced in the US anymore anyhow I fail to see how they expect a VAT to collect much money. It would however help to diminish what little production capacity still remains.

You'd be suprized.

I lived in New Zealand which produces very little as well. Basically, wool, wine and tourism. They ended up losing their appeal as a movie shoot location because they wrang the goose's neck on that one.

It is shocking how much they can wring out.

Of course, their economy went absolutely to shit and now they seem to be headed back to a more free market economy. :dough:

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Seeing how very little is produced in the US anymore

I think you've said that before (though I'm not sure). If you did, consider making this the day you back it up with some evidence.

As far as I can tell, from various sources I've seen over the years, the US is the leading manufacturer of the whole wide world. It is also a net exporter of food, which, considering that it is also the leading consumer of food per capita, is not "very little". It is also among the top three exporters in the world. It also produces more (a lot more, I just don't know the number) than 50 quadrilion BTUs of energy every year. Does that qualify as "very little"? Which countries produce "very much", compared to it?

Plus, stores that sell Chinese toys or Japanese cars would be paying VAT too, so even if the US economy was based on imports more than domestic production (whch it isn't), this tax would still collect vast sums of money, at the expense of American consumers.

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I think you've said that before (though I'm not sure). If you did, consider making this the day you back it up with some evidence.

Ask and ye shall receive.

post-1579-1261304150_thumb.png

post-1579-1261300099_thumb.png

According to the EPI (Economic Policy Institute): between 2000 and 2003, annual manufacturing employment in the United States declined by almost 3 million jobs, and has been largely flat since then. The level of manufacturing employment is the lowest since 1950.

According to the Daily Capitalist in the last two years construction employment declined by 27,000, manufacturing employment fell by 41,000, and information industry jobs fell by 17,000.

post-1579-1261300610_thumb.png

The Daily Finance:U.S. industrial production falls, factory use hits record low

post-1579-1261300686_thumb.png

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According to the EPI (Economic Policy Institute): between 2000 and 2003, annual manufacturing employment in the United States declined by almost 3 million jobs, and has been largely flat since then. The level of manufacturing employment is the lowest since 1950.

That's a meaningless figure, as far as production, (especially the comparison with 1950) unless you can also prove that productivity did not increase since the 1950s. If in fact it did (as it does all the time, and as it obviously did), then a lot more is being manufactured now than in the 1950s, and you still presented no evidence that there's less being manufactured than in 2000. You also have not addressed what I said, which is that the US is the leading manufacturer of the World.

By the logic 'number of people employed = level of production', the Neolithic Era and the European Dark Ages were the height of agricultural production, the ideal goal modern agriculture should strive to achieve.

According to the Daily Capitalist in the last two years construction employment declined by 27,000, manufacturing employment fell by 41,000, and information industry jobs fell by 17,000.

Hate to help your cause, but I think that might be a one month decline.

Anyways, there are about 13 to 14 million manufacturing jobs in the US. Since it's a short period of time, we can forget about the increase in productivity aspect of the equation, but still: 41,000 jobs lost does not mean there's almost nothing produced. In fact, it means there's almost no production lost, if you must describe it in approximations, instead of actual figures.

As for construction, there was a housing bubble, remember? Of course it's down.

The Daily Finance:U.S. industrial production falls, factory use hits record low

Of course it does. Everything fell, everywhere, since the World is in a recession. That doesn't mean the US is producing very little anymore, it means it is producing a little less these past 17 months, due to a temporary recession.

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I couldn't help notice you didn't mention the manufacturing capacity utilization index which I posted. The index has fallen nearly twenty percent since '82.

Here's the chart again.

post-1579-1261336633_thumb.png

INDUSTRIAL PRODUCTION AND CAPACITY UTILIZATION: SUMMARY for 2009.

post-1579-1261336700_thumb.png

Keep in mind these are the Federal Reserve's numbers. God knows they have a history of changing rules and inflating numbers to make their numbers seem better ie Unemployment, GDP, CPI. However, if these are their improved numbers I'd hate to see were they most likely are.

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post-1579-1261336633_thumb.png

That chart got me to thinking.

Isn't a recession defined as 2 quarters of negative growth or something like that?

Doesn't labelling any sudden downturn create a self fulfilling prophecy of sorts?

If you look at the 2001 "recession" you can see that things were in a steady decline long before the recession was acknowledged. Fast forward to the present recession and it seems as soon as there was a hint that the economy wasn't outperforming month after month as it had been, the fix was in to call the slow down a recession. This then inevitably made people and banks become a little more conservative, which means less money spent and lent which leads in turn to less growth and so on until you have turned an economic lull into a full blown recession.

Am I right out to lunch on this?

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I couldn't help notice you didn't mention the manufacturing capacity utilization index which I posted. The index has fallen nearly twenty percent since '82.

I'm ignoring everything, except what I asked for: evidence that the US is producing "very little anymore". (This one I double ignored, because in the previous post, the numbers were too small to read. But now I'm curious, how is this thing measured exactly, and how does it tell me how much is being produced in the US, compared to other countries?)

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But now I'm curious, how is this thing measured exactly, and how does it tell me how much is being produced in the US, compared to other countries?)

Its hard to say because one of the problems with the way the Fed calculates industrial production is that it counts all inputs as if they were produced here in the US. For example if GM imports its Carburetors from Asia (as I believe it does) along with other parts once the car is finished the Fed counts all parts of the car as being produced in the US and the manufacturing of the Carburetor is counted as part of our GDP.

This isn't much different then me buying a table at Ikea assembling it my self and saying I produced the table.

Here is the production output for the last ten years:

post-1579-1261339945_thumb.png

Here is a chart showing the Trade balance

post-1579-1261340010_thumb.png

This chart shows the change in labor in the last six months

post-1579-1261340087_thumb.png

Edited by Rearden_Steel
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Seeing how very little is produced in the US anymore...

This article from 2007 (prior to the current recession) directly contradicts your statement:

The United States makes more manufactured goods today than at any time in history, as measured by the dollar value of production adjusted for inflation -- three times as much as in the mid-1950s, the supposed heyday of American industry. Between 1977 and 2005, the value of American manufacturing swelled from $1.3 trillion to an all-time record $4.5 trillion, according to the Bureau of Economic Analysis.

With less than 5 percent of the world's population, the United States is responsible for almost one-fourth of global manufacturing, a share that has changed little in decades. The United States is the largest manufacturing economy by far. Japan, the only serious rival for that title, has been losing ground. China has been growing but represents only about one-tenth of world manufacturing.

http://www.washingtonpost.com/wp-dyn/content/article/2007/09/02/AR2007090201189.html?hpid=topnews

I think you've made the common mistake of assuming that because we are in a long term trend of declining manufacturing employment, we are also producing less. That simply isn't the case. The other mistake you've made is to look at the recent decline in manufacturing (due to the recession) and assume that it will continue. It will not, and there is recent evidence that manufacturing has begun to bounce back as the economy rebounds.

Edited by gags
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This article from 2007 (prior to the current recession) directly contradicts your statement:

http://www.washingtonpost.com/wp-dyn/content/article/2007/09/02/AR2007090201189.html?hpid=topnews

I think you've made the common mistake of assuming that because we are in a long term trend of declining manufacturing employment, we are also producing less. That simply isn't the case. The other mistake you've made is to look at the recent decline in manufacturing (due to the recession) and assume that it will continue. It will not, and there is recent evidence that manufacturing has begun to bounce back as the economy rebounds.

Yes, I see your point however like I said how do you measure industrial production? Though the GDP? Like I showed on the previous post those numbers are artificially risen by counting foreign inputs so they are not an accurate way to measure industrial output. That's not real production. They only reason they piece them together here is to avoid tariffs. These things could be assembled anywhere.

The only way you can really judge us production is through the Manufacturing capacity utilization rate index, the level of industrial employment, and the deficit in trade all these things have fallen not just in the last year but have been declining in the last twenty.

The utilization of industry, the increase of industrial jobs and exports are rapidly rising in most of Asia but falling here. Look at the deficit. It rises as our utilization of industry falls.

Edited by Rearden_Steel
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Yes, I see your point however like I said how do you measure industrial production? Though the GDP? Like I showed on the previous post those numbers are artificially risen by counting foreign inputs so they are not an accurate way to measure industrial output. That's not real production. They only reason they piece them together here is to avoid tariffs. These things could be assembled anywhere.
There’s no doubt that you’ve identified one of the problems with just looking at the end value of goods manufactured here in the US. Nevertheless, I think it’s still the best single measure to review when trying to judge your statement that we don’t make anything here in the US anymore.

The only way you can really judge us production is through the Manufacturing capacity utilization rate index, the level of industrial employment, and the deficit in trade all these things have fallen not just in the last year but have been declining in the last twenty.

The utilization of industry, the increase of industrial jobs and exports are rapidly rising in most of Asia but falling here. Look at the deficit. It rises as our utilization of industry falls.

The problem with capacity utilization is that it rises as capacity is reduced. For example, in the US auto industry the current recession and the resulting bankruptcies of auto suppliers have caused there to be a drop in capacity, which would cause the utilization index to increase even as production remains stagnant. I don’t see how that index backs up your statement that we don’t make anything here anymore. The problem with employment stats is that the number of manufacturing jobs is declining in the US because of increasing productivity. By the way, the same thing is happening in China, where productivity is also increasing. So, this doesn’t help your argument either. Finally, the trade imbalance is impacted by a number of different variables and to claim that it is worsening, thus showing that we aren’t making anything here, is fairly ridiculous.

Having said all of that, I think that government regulation and the threat of unionization are making it more and more difficult to manufacture things here in the US. In that sense, I agree with you on some level.

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The utilization of industry, the increase of industrial jobs and exports are rapidly rising in most of Asia but falling here. Look at the deficit. It rises as our utilization of industry falls.

The deficit rises as federal spending increases. It has absolutely nothing to do with utilization of industry, the income of the federal government is not diminishing in any way, they are simply spending more.

Another thing that has no bearing on US production is that Asian economies are expanding.

As for US exports, here's what they've been doing before the recession (and, by the way, they began rising again, for a while now):

exports.jpg

Jesus Christ, if you skied down that slope, you'd break your neck. And yet, that's the slope your claim that US exports are falling is skiing down on right now. I'd be more careful with throwing around these facts you are making up to suit whatever theories you have.

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The deficit rises as federal spending increases. It has absolutely nothing to do with utilization of industry, the income of the federal government is not diminishing in any way, they are simply spending more.

Another thing that has no bearing on US production is that Asian economies are expanding.

As for US exports, here's what they've been doing before the recession (and, by the way, they began rising again, for a while now):

exports.jpg

Jesus Christ, if you skied down that slope, you'd break your neck. And yet, that's the slope your claim that US exports are falling is skiing down on right now. I'd be more careful with throwing around these facts you are making up to suit whatever theories you have.

Yeah, the chart is great if you include the banking and finance sector. Here is the chart for manufactured goods.

post-1579-1261458390_thumb.png

Happy skiing.

As for the industrial production and capacity utilization index its completely relevant seeing that its a measure of the change in the production of the nation's factories, mines and utilities. It also includes a measure of their industrial capacity and how much of it is being used. The fact that the same factory in the us that are being used today are producing less and less over the last two decades is reviling.

I'd be more careful with throwing around these facts you are making up to suit whatever theories you have.

I take offense to that. What facts are suggesting I'm making up? Lets try and have a conversion without slanderous postulating. After all many of these theories that you attribute to me I've taken from various Austrian Economist. Remember at the end of the day we all want the same thing.

Edited by Rearden_Steel
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Yeah, the chart is great if you include the banking and finance sector.

We are talking about production, not your favorite types of production, and you clearly said that exports are falling. I offered conclusive evidence that you made that up.

I take offense to that. What facts are suggesting I'm making up?

That US exports are dropping, as well as your original claim that the US is producing very little anymore.

After all many of these theories that you attribute to me I've taken from various Austrian Economist. Remember at the end of the day we all want the same thing.

We don't seem to want the same thing. I'm looking to draw conclusions from the truth, not a manufactured reality meant to support some theory about how industrial production is linked to the deficit, how factories are the only means of "real" production, or even how the trade deficit is going to automatically destroy the US economy.

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That's one of the beauties (from the perspective of a statist) of the VAT. It gets collected along the production process, so it's more than just a national sales tax. It will be very hard to avoid. Many of the European countries have VATs, so I can hear the arguments already: "The US is the only developed country without a VAT...."

I lived in Germany, a country that uses the VAT, for a short time, and I always thought the VAT was just similar to sales tax. Now I know the difference; I didn't know that what sets it apart was its collection through the production process, down to the consumer. I think I've read that some countries who use VAT refund it to companies who export, giving them an advantage over companies in the United States. If that's the case, I wouldn't be surprised if business owners, in the export business, do get behind this idea.

Edited by RussK
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I think I've read that some countries who use VAT refund it to companies who export, giving them an advantage over companies in the United States.

I know that for a number of years the Canadians would refund the VAT paid by tourists. This was done when the visitor was leaving the country with whatever goods were purchased inside Canada. You showed the border agents your receipts and they would give you the VAT back in cash. Of course this was done to promote tourism.

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I know that for a number of years the Canadians would refund the VAT paid by tourists. This was done when the visitor was leaving the country with whatever goods were purchased inside Canada. You showed the border agents your receipts and they would give you the VAT back in cash. Of course this was done to promote tourism.

I wonder if it was also done so that the US could charge duty?

Introducing a VAT to "pay the bills" is a typical government solution to a government-created problem. What the VAT really does in the short-term is erode purchasing power. Prices go up for everything with at best zero increase in quality. Often, quality goes down as corners start being cut. More businesses go bankrupt because they were already struggling. People are forced to cut their personal spending because necessities require more of what is a fixed income (i.e., pensions, structured payments and even paycheques.) Oh and another thing to look forward to are strikes when the unionized workers' contracts are up, and they get going to demand a hike in pay to cope with the higher b.s. taxes.

The VAT is simply a compounding of the problem, not a solution. Tell Obama to quit spending your great-grandkids' money. It appears he and his predecessors have already spent yours, your kids' and their kids'.

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After reading the exchange here related to US production and exports I decided to look up the components of exported US goods and services.

Factsheet

The largest export markets for U.S goods:

Canada ($30.3 billion)

Mexico ($19.1 billion)

China ($8.9 billion)

Japan ($8.2 billion)

United Kingdom ($7.4 billion)

------------------------------------------------------

1) Capital goods represent the largest goods export category (end-use) for the U.S. with $66.4 billion last year (from Feb 2008 to Feb 2009).

The top export categories for capital goods products:

civilian aircraft ($6.9 billion)

semiconductors ($5.5 billion)

telecommunications equipment ($5.0 billion)

industrial machines ($4.8 billion)

medicinal equipment ($4.5 billion)

2) Second largest category is industrial supplies - $44.2 billion.

The top export categories for industrial supplies:

plastic materials ($3.4 billion)

organic chemicals ($3.3 billion)

other chemicals ($3.2 billion)

fuel oil ($3.2 billion)

other petroleum products ($2.8 billion).

3) Third largest category is foods, feeds and beverages - represented $14.3 billion

The top export categories for foods, feeds, and beverages:

soybeans ($2.3 billion)

meat and poultry ($2.1 billion)

corn ($1.4 billion).

---------------------------------

U.S. services exports totaled $84.6 billion.

Services export categories:

other private services ($39.0 billion)

travel ($16.0 billion)

royalties and license fees ($14.5 billion)

other transportation ($7.8 billion)

passenger fares ($4.7 billion)

government services ($2.6 billion)

Edited by ~Sophia~
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Since around 1999-2000 (when China really started to boom) the number of people employed in the U.S. manufacturing sector has fallen sharply. Nevertheless, the actual output of manufacturing (which rose steadily before the 2000's) has flattened out. It is almost certain that the number of people employed will flatten out at some point, and that the total manufacturing output will increase steadily (because every decade sees more output per person). This is the same pattern that one sees with agriculture. There comes a point in the history of an economy when the number of people employed in agriculture fell drastically and then flattened out; however, total agricultural production grew. [For more, see this blog]

Also, the U.S. is still the largest manufacturer in the world. [Click here for more]

In a world of free economies, it matters very little whether a country specializes in one type of output of another. Nor does it much matter what type of import surplus or deficit a country runs up. In our world of extensive government intervention, it can matter. However, the way to change things for the better is to lessen the government intervention (e.g. by the U.S. and Chinese government).

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  • 3 months later...

Former Fed Chairman and Obama advisor Paul Volker recently suggested that both a VAT and an energy tax should be on the table to help pay for the government's massive overspending. The ruling class continues to lay the foundation for this tax, while also claiming that a VAT won't be enacted.

Here are a couple of good WSJ pieces on the VAT that the politicians are planning to shove down our throats:

http://online.wsj.com/article/SB1000142405...0672253834.html

http://online.wsj.com/article/SB1000142405...0620528592.html

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