thoughts on VAT
Personally - hate the VAT. At the same time, you gotta recognize that 175 countries use it. The United States is the only OECD country that doesn't have a VAT.
Reasons I hate it:
1) It's a pain in the ass. It puts a big administrative burden on a small business. If you don't have an accountant or tax preparer (if you are running some small car parts shop, for example) - then you have to take days or weeks out of your year to sort everything.
2) Everybody up and down the supply chain has to collect and remit the VAT. You charge VAT on your sales (output tax), and then reclaim VAT on your purchases (input tax). This means a need to constantly file detailed periodic returns, produce VAT compliant invoices, and on top of it all - if you do any cross border stuff - you gotta stay on top of international VAT compliance.
3) If you f*ck up - the fines and audits are usually hugely annoying. The problem is - it is easy to f*ck up with such a Byzantine system.
In America, if I'm buying something, to make something else - all I gotta do is apply for a Re-Sale Certificate or a Sales Tax Exemption. It's a one page document I can fill out in probably 90 seconds. That's it! I don't have to collect or pay out any stupid taxes from anyone, and can just carry on running my business.
The only person in America that pays a sales tax is the final consumer. So... on the example of a Coca Cola bottle:
Coke doesn't have to pay sales tax on the caps and bottles and labels it buys, just to apply for a refund of these taxes later (as under VAT). It just doesn't pay any tax at all, thereby avoiding these stupid back and forth motions. Neither does Coca Cola's distributor have to pay sales tax when it buys the pallets of Coke bottles from Coke. Neither does the retailer, that buys the Coke from the distributor. The only person that pays a tax in America is the guy that takes the Coke bottle from the shelf and drinks it.
The problem with having just a sales tax, however, is that it's in effect a tax on the poor. Many poor people in America pay significantly more in sales tax than in income tax (income tax typically being zero for low brackets). For poor people, consumption is a much larger piece of the family budget - but the sales tax is flat. A billionaire and a pauper pay the same rate.
But that's a different problem. I still hate VAT because it's a pain in the ass, and because of this a business killer.
