Tax Plan question

MommyLiberty5013

Someone explain to me the argument in the GOP debate the other night between Rubio and Cruz over Cruz's tax plan and whether or not it's a VAT. Rubio says it is, Cruz says it's not. So, why is it or isn't it? Who's full of it?

smerka

http://www.factcheck.org/2016/01/factchecking-the-sixth-republican-debate/ Well there's this. And for the record, why do Republicans insist on invoking the word of Reagan on everything?

vlagrl29

smerka said:

http://www.factcheck.org/2016/01/factchecking-the-sixth-republican-debate/ Well there's this. And for the record, why do Republicans insist on invoking the word of Reagan on everything?

this is what i was wondering too

BlueBirdMB

What does VAT have to do with Reagan??  Thanks for posting the fact check.  I was curious.  It sounded like Rubio was correct, but I wasn't sure.  

smerka

The article says Reagan opposed the VAT. And takes the tone of Well Resgan was against it so obviously it's bad. I don't know enough about it to have an opinion one way or another

BlueBirdMB

I read over that sentence.  Reagan was not a brilliant man, but he united the country and was a breath of fresh air at a time when the country needed it.  He is simply discussed a lot because he was very popular.  It's overdone and his popularity didn't mean he was the ultimate authority on everything.

MommyLiberty5013

Why would a VAT be good for bad for the USA (regardless of whether Reagan liked it or not)? And, how is Cruz's plan a VAT (according to Rubio)? I guess that's a mystery to me.

hoffse

VAT stands for "value added tax."  The idea being that you add tax at each stage of production of a good (based on the value added at that stage of production), and then you pass the final tax bill onto the consumer at the end who pays it.  That makes it a true consumption tax (vs. a sales tax), because the producers aren't bearing the tax burden as they go along.  The only tax trigger is the consumption of that item after production is complete.  

If the US had it, it would probably be reflected at the federal level, rather than the state or local level.  Most people would probably view it as functioning like a sales tax, but consumption at the end of production is the key tax trigger, so there is a fundamental - if subtle - difference.  It matters more for corporate book-keeping than anything else.

In most European countries their VAT is around 20%.  The final price you pay for all goods there includes the 20% VAT.  You would think it makes goods cost more for consumers, but it really doesn't - because producers aren't having to pay sales tax on production materials as they go along.  That tax is simply passed onto the consumer at the end, so the cost ends up being about the same for equivalent goods (ignoring for a moment differences in currency values).  A $5 bottle of shampoo here would be a 5 euro bottle there, and that 5 euros would include the 20% VAT.

The other interesting thing about how the Europeans do it is because it's consumption-based, visitors can often claim VAT back at the airport for goods they did not consume in the EU.  So I can't claim back the VAT on the burger I ate and beer I drank because it was consumed in the EU, but I could claim back the VAT on the designer purse I bought because it was still in the packaging when I left the EU and therefore it wasn't "consumed." Most of the times we visit Europe I manage to get a decent VAT refund back.

In contrast, paying sales tax for goods is something nobody can get back, whether it's consumed state-side or not.  Foreign visitors get really confused by this, because much of the world operates on VAT.

I could get on board with a modified VAT so that basic necessities - groceries, medication, etc. -  weren't taxed, but other consumables were.

BlueBirdMB

Thanks for the explanation @hoffse!  That was really helpful

short+sassy

hoffse said:

In contrast, paying sales tax for goods is something nobody can get back, whether it's consumed state-side or not.  Foreign visitors get really confused by this, because much of the world operates on VAT.

I could get on board with a modified VAT so that basic necessities - groceries, medication, etc. -  weren't taxed, but other consumables were.

Years ago, and it could be different now, I had a p/t job at a retail store near the French Quarter.  We had a form that foreign visitors could request in order to get their sales tax back for their purchase.  I don't know much more about it than that.  We still charged the sales tax but (I guess) they could take their forms somewhere and have the sales tax returned to them for goods purchases.