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Volcker: Taxes likely to rise eventually to tame deficit
(Reuters) - The United States should consider raising taxes to help bring deficits under control and may need to consider a European-style value-added tax, White House adviser Paul Volcker said on Tuesday.
Volcker, answering a question from the audience at a New York Historical Society event, said the value-added tax "was not as toxic an idea" as it has been in the past and also said a carbon or other energy-related tax may become necessary.
Though he acknowledged that both were still unpopular ideas, he said getting entitlement costs and the U.S. budget deficit under control may require such moves. "If at the end of the day we need to raise taxes, we should raise taxes," he said.
Consider the manufacture and sale of any item, which in this case we will call a widget. In what follows , the term "gross margin" is used rather than "profit". Profit is only what is left after paying other costs, such as rent and personnel.
Without any tax
A widget manufacturer spends $1.00 on raw materials and uses them to make a widget.
The widget is sold wholesale to a widget retailer for $1.20, making a gross margin of $0.20.
The widget retailer then sells the widget to a widget consumer for $1.50, making a gross margin of $0.30.
With a North American (Canadian provincial and U.S. state) sales tax
With a 10% sales tax:-
The manufacturer pays $1.00 for the raw materials, certifying it is not a final consumer.
The manufacturer charges the retailer $1.20, checking that the retailer is not a consumer, leaving the same gross margin of $0.20.
The retailer charges the consumer $1.65 ($1.50 + $1.50x10%) and pays the government $0.15, leaving the gross margin of $0.30.
So the consumer has paid 10% ($0.15) extra, compared to the no taxation scheme, and the government has collected this amount in taxation. The retailers have not paid any tax directly (it is the consumer who has paid the tax), but the retailer has to do the paperwork in order to correctly pass on to the government the sales tax it has collected. Suppliers and manufacturers only have the administrative burden of supplying correct certifications, and checking that their customers (retailers) aren't consumers.
With a value added tax
With a 10% VAT:
The manufacturer pays $1.10 ($1 + $1x10%) for the raw materials, and the seller of the raw materials pays the government $0.10.
The manufacturer charges the retailer $1.32 ($1.20 + $1.20x10%) and pays the government $0.02 ($0.12 minus $0.10), leaving the same gross margin of $0.20.
The retailer charges the consumer $1.65 ($1.50 + $1.50x10%) and pays the government $0.03 ($0.15 minus $0.12), leaving the gross margin of $0.30 (1.65-1.32-.03).
With VAT, the consumer has paid, and the government received, the same as with sales tax. The businesses have not incurred any tax themselves. Their obligation is limited to assuming the necessary paperwork in order to pass on to the government the difference between what they collect in VAT (output tax, an 11th of their sales) and what they spend in VAT (input VAT, an 11th of their expenditure on goods and services subject to VAT). However the are freed from any obligation to to request certifications from purchasers who are not end users, and of providing such certifications to their suppliers.
Note that in each case the VAT paid is equal to 10% of the gross margin, or 'value added'.
Originally posted by Subjective Truth
We should take a good hard look at Europe. How is it working out over there ? I personally think they are about to brake apart at the seems ...
Hitler and Stalin were both progressives. They wanted social justice and for things to be fair. Hmm were have I recently heard that.
Originally posted by links234
From the Europeans I occasionally converse with, they seem to think the exact same thing about us. Any day now the dollar will collapse and the euro will start being the dominant currency in the world markets, in addition to the absurdity of denying health care to poor people.
Originally posted by Subjective Truth
reply to post by hawkiye
They wont do it they want it to be slow so we do not wake up from our apathy.
reply to XtrozeroOur GNP is the bottom line and is close to all of EU combined, so until that takes a big hit I don't see the dollar going away anytime soon.
Originally posted by boondock-saint
Im NOT gonna pay anymore taxes
come get my a$$
throw me in jail
I am sick and tired
and being forced to
pay for mistakes
I didnt cause
sorry for the rant