Value added tax

The Value Added Tax ( VAT ) taxes all business profit and labor. Profit being gross receipts minus all business expenses including the 'tax' on labor which is considered a cost of doing business. Profit and labor could be lumped together by subtracting all other business expenses from gross receipts and then taxing the remainder at a uniform VAT tax rate.

The cost of materials, subcomponents, tools, equipment, facilities, supplies, etc, and any services purchased from other businesses isn't taxed (again) under the VAT. Those purchases would have already been subjected to the VAT by the supplying businesses.

Definition

Value added tax (usually shortened to VAT) is a levy on the amount a business add to the pric (hence the name "value added") of goods during their production and distribution. Since it is a tax on commodities purchased, ultimately for consumption, rather than on the income of an individual or corporation, it is essentially a consumption tax.

The VAT is usually collected by the tax credit method; each firm applies the tax rate to its taxable sales, but is allowed a credit for value-added tax paid on its purchases of goods and services for business use, including the tax paid on purchases of capital equipment under a consumption-type value-added tax. As a result, the only tax for which no credit would be allowed would be that collected on sales made to households, rather than to businesses.

Since the sum of the values added at all stages in the production and distribution of a good are equal to the retail selling price of the good, the revenue base of a retail sales tax and a value-added tax with the same coverage are theoretically identical, and a given tax rate will yield the same amount of tax revenue under either approach and under equal conditions of implementation, e.g., no exceptions, exemptions, etc.

History

The VAT was invented by a French economist in 1954. Maurice Lauré, joint director of the French tax authority, the Direction générale des impôts, as taxe sur la valeur ajoutée (TVA in French) was first to introduce VAT with effect from 10 April 1954 for large businesses, and extended over time to all business sectors. In France, it is the most important source of state finance, accounting for approximately 45% of state revenues.

West Germany adopted VAT in 1968, and subsequently most other Western European countries also implemented some form of VAT. Many countries in Africa, Asia, and South America have also followed suit. Although the United States as a whole has not, the state of Michigan has used a value added tax.

Today, all members of the European Union are required to implement VAT.

How the VAT works in Europe

Under the EU system of VAT, where a person carrying on an economic activity supplies goods and services to another person, and the value of the supplies passes financial limits, the supplier is required to register with the local taxation authorities and charge its customers, and account to the local taxation authority for VAT (although the price may be inclusive of VAT, so VAT is included as part of the agreed price, or exclusive of VAT, so VAT is payable in addition to the agreed price).

VAT that is charged by a business and paid by its customers is known as output VAT (that is, VAT on its output supplies). VAT that is paid by a business to other businesses on the supplies that it receives is known as input VAT (that is, VAT on its input supplies). A business is generally able to recover input VAT to the extent that the input VAT is attributable to (that is, used to make) its taxable outputs.

Input VAT is recovered by setting it against the output VAT for which the business is required to account to the government, or, if there is an excess, by claiming a repayment from the government.

Different rates of VAT apply in different EU member states. The minimum standard rate of VAT throughout the EU is 15%, although reduced rates of VAT, as low as 5%, are applied in various states on various sorts of supply (for example, domestic fuel and power in the UK). The maximum rate in the EU is 25%.

The Sixth VAT Directive requires certain goods and services to be exempt from VAT (for example, postal services, medical care, lending, insurance, betting), and certain other goods and services to be exempt from VAT but subject to the ability of an EU member state to opt to charge VAT on those supplies (such as land and certain financial services). Input VAT that is attributable to exempt supplies is not recoverable, although a business can increase its prices so the customer effectively bears the cost of the 'sticking' VAT (the effective rate will be lower than the headline rate and depend on the balance between previously taxed input and labour at the exempt stage).

Finally, some goods and services are "zero-rated." The zero-rate is a positive rate of tax calculated at 0%. Supplies subject to the zero-rate are still "taxable supplies," i.e. they have VAT charged on them. In the UK, examples include most food, books, drugs, and certain kinds of transport. The zero-rate is not featured in the EU Sixth Directive as it was intended that the minimum VAT rate throughout Europe would be 5%. However, zero-rating remains in some Member States, most notably the UK, as a legacy of pre-EU legislation. These Member States have been granted a derogation to continue existing zero-rating but cannot add new goods or services. The UK also exempts or lowers the rate on some products depending on situation; for example milk products are exempt from VAT, but if you go into a restaurant and drink a milk drink it is VAT-able. Some products such as feminine hygiene products and baby products (nappies etc) are charged at 5% VAT along with domestic fuel.

When goods are imported into the EU from other states, VAT is generally charged at the border, at the same time as customs duty. "Acquisition" VAT is payable when goods are acquired in one EU member state from another EU member state (this is done not at the border but through an accounting mechanism). EU businesses are often required to charge themselves VAT under the reverse charge mechanism where services are received from another member state or from outside of the EU.

Businesses can be required to register for VAT in EU member states, other than the one in which they are based, if they supply goods via mail order to those states, over a certain threshold. Businesses that are established in one member state but which receive supplies in another member state may be able to reclaim VAT charged in the second state under the provisions of the Eighth VAT Directive (Directive 79/1072/EC). To do so, businesses have a value added tax identification number. A similar directive, the Thirteenth VAT Directive (Directive 86/560/EC), also allows businesses established outside the EU to recover VAT in certain circumstances.

Differences between VAT and (retail) sales tax

Despite its multistage character, explained in the above section a value-added tax is very much like a retail sales tax in that it is a tax on expenditures by consumers or, in other words, it is just another type of consumption tax.

Retail sales tax, the familiar percentage tax on retail sales, is one type of consumption tax. Of the various forms of consumption taxes, the sales tax surely has the great advantage for most of tax-payers of eliminating the despotic power of the government over the life of every individual, as in the income tax, or over each business firm, as we shall see the VAT might do. Sales tax also does not distort the production structure as would the VAT, and it would not skew individual preferences as would specific excise taxes (Rothbard 1994).

The VAT consumption tax, standard in Europe and other parts of the world and proposed in the U.S., imposes a bit of hierarchical tax on the "value added" by each firm and business.

Since the sum of the values added at all stages in the production and distribution of a good are equal to the retail selling price of the good, the revenue base of a retail sales tax and a value-added tax with the same coverage are theoretically identical, and a given tax rate will yield the same amount of tax revenue under either approach.

Thus, despite its multistage character, a value-added tax is very much like a retail sales tax in that it is a tax on expenditures by consumers.

This would tend to distort the structure of business. For one thing, there would be an incentive for uneconomic vertical integration, since the fewer the number of times a sale takes place, the fewer the imposed taxes. Also, as has been happening in European countries with experience of the VAT, a flourishing industry may arise in issuing phony vouchers, so that businesses can over-inflate their alleged expenditures, and reduce their reported value added. But a sales tax, other things being equal, seems to be both simpler, less distorting of resources, and enormously less bureaucratic and despotic than the VAT. Indeed the VAT seems to have no clear advantage over the sales tax, except of course, if multiplying bureaucracy and bureaucratic power is considered a benefit ( ibid., 1994.)

Another way to look upon the difference VAT vs. Sales Tax

Another way of looking at this issue is this. VAT differs from a conventional sales tax in that VAT is levied on every business as a fraction of the price of each taxable sale they make, but they are in turn reimbursed VAT on their purchases, so the VAT is applied to the value added to the goods at each stage of production (Sharma, 2005: 916 quoted in Muller, 2007:64).

Sales taxes are normally only charged on final sales to consumers: because of reimbursement, VAT has the same overall economic effect on final prices. The main difference is the extra accounting required by those in the middle of the supply chain; this disadvantage of VAT is balanced by application of the same tax to each member of the production chain regardless of its position in it and the position of its customers, reducing the effort required to check and certify their status. When the VAT has few, if any exemptions such as with GST in New Zealand, payment of VAT is even simpler.

A general economic idea is that if sales taxes exceed 10%, people start engaging in widespread tax evading activity (like buying over the Internet, pretending to be a business, buying at wholesale, buying products through an employer etc.) On the other hand, total VAT rates can rise above 10% without widespread evasion because of the novel collection mechanism.[citation needed] However because of its particular mechanism of collection, VAT becomes quite easily the target of specific frauds like carousel fraud which can be very expensive in terms of loss of tax incomes for states.

Collection Mechanism

The standard way to implement a VAT is to say a business owes some percentage on the price of the product minus all taxes previously paid on the good. If VAT rates were 10%, an orange juice maker would pay 10% of the $5 per gallon price ($0.50) minus taxes previously paid by the orange farmer (maybe $0.20). In this example, the orange juice maker would have a $0.30 tax liability. Each business has a strong incentive for its suppliers to pay their taxes, allowing VAT rates to be higher with less tax evasion than a retail sales tax.

Example

Consider the manufacture and sale of any item, which in this case we will call a widget.

• ( 1 ) Without any sales tax

• A widget manufacturer spends $1 on raw materials and uses them to make a widget.
• The widget is sold wholesale to a widget retailer for $1.20, making a profit of $0.20.
• The widget retailer then sells the widget to a widget consumer for $1.50, making a profit of $0.30

• ( 2 ) With a North American (Canadian Provincial and U.S. State) sales tax.

• ( 2.1 ) 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 profit of $0.20.
• The retailer charges the consumer $1.65 ($1.50 + 10%) and pays the government $0.15, leaving the same profit 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 lost anything directly to the tax, but they do have the extra paperwork to do so that they correctly pass on to the government the sales tax they collect. Suppliers and manufacturers have the administrative burden of supplying correct certifications, and checking that their customers (retailers) aren't consumers.

• ( 3 ) With a value added tax:

• ( 3.1 ) With a 10% VAT:

• The manufacturer pays $1.10 ($1 + 10%) 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 profit 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 same profit 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 businesses have not lost anything directly to the tax, but they do have the extra paperwork to do so that they correctly pass on to the government the difference between what they collect in VAT (output VAT, an 11th of their income) and what they spend in VAT (input VAT, an 11th of their expenditure).

Note that in each case the VAT paid is equal to 10% of the profit, or 'value added'. The advantage of the VAT system over the sales tax system is that businesses cannot hide consumption (such as wasted materials) by certifying it is not a consumer.

Limitations to example and VAT

In the above example, we assumed that the same number of widgets were made and sold both before and after the introduction of the tax. This is not true in real life. The fundamentals of supply and demand suggest that any tax raises the cost of transaction for someone, whether it is the seller or purchaser. In raising the cost, either the demand curve shifts leftward, or the supply curve shifts upward. The two are functionally equivalent. Consequently, the quantity of a good purchased, and/or the price for which it is sold, decrease. This shift in supply and demand is not incorporated into the above example, for simplicity and because these effects are different for every type of good. The above example assumes the tax is non-distortionary.

A VAT, like most taxes, distorts what would have happened without it. Because the price for someone rises, the quantity of goods traded decreases. Correspondingly, some people are worse off by more than the government is made better off by tax income . That is, more is lost due to supply and demand shifts than is gained in tax. This is known as a deadweight loss. The income lost by the economy is greater than the government's income; the tax is inefficient. The entire amount of the government's income (the tax revenue) may not be a deadweight drag, if the tax revenue is used for productive spending or has positive externalities - in other words, governments may do more than simply consume the tax income. While distortions occur, consumption taxes like VAT are often considered superior because they distort incentives to invest, save and work less than most other types of taxation - in other words, a VAT discourages consumption rather than production. However they are still considered inferior to taxes like land value tax which neither cause deadweight losses nor distort incentives.

Several disadvantages of VAT

• Growth of government ( see also “Administrative Costs”):

The United States stands almost alone among the developed countries of the free world in not levying a national sales tax. Virtually all of the members of the European Economic Community (EEC) employ a national value-added tax. Of the twenty-three ( original ) members of Organization for Economic Cooperation and Development (OECD), only two countries—Japan and Turkey—use neither a value-added tax nor a general sales tax. In Canada, there is a bit similar national tax—apart from bewildering array of, by no means harmonized, provincial sales taxes—called GST or General Sales tax.

The lack of a national sales tax ( e.g. VAT ) in the United States is reflected closely in the percentage of Gross Domestic Product (GDP) devoted to public use in the United States and in other countries. In 1982 total tax revenues at all levels of government averaged 30.5 percent of GDP in the United States. The comparable figure for the EEC countries was 40.1 percent and for the countries of the OECD, exclusive of the United States, it was 37.1 percent.

In the United States, sales taxes (state and local) took approximately 6 percentage points less of GDP than in the EEC and in the OECD (exclusive of the United States). It is not only sales taxes that are lower in the United States; corporate income and social security taxes also are substantially lower in the figures suggest that even if a sales tax were initially imposed as a partial replacement for the income tax in a revenue-neutral change, public spending in the United States would eventually be greater with a national sales tax than without one.

• Regressivity:

A tax is regressive if the average tax rate falls with an increase in income, proportional if the average tax rate is constant, and progressive if the average tax rate rises with income. Simply put, low-income people pay a higher fraction of their income in taxes than wealthier people if the tax is regressive and a lower fraction if the tax is progressive.

A general sales tax --- as all types of consumption taxes inclusive of ( Retail ) sales tax ---- is often criticized as unfair to lower income individuals and families. There are two aspects to this equity argument:

( 1 ) The absolute burden of the tax on the lowest income groups, and the regressivity of the tax or the relatively higher burden of the tax at the lower income levels than at the higher.

Simultaneously,

( 2 ) There are several alternatives for lessening the burden of the tax on the poor. For those individuals and families that are above the poverty level of income and thus subject to the income tax, the regressivity of a sales tax can be offset through the adjustment of income tax rates or through non-refundable credits against the income tax.

• Effect on prices:

Assuming an accommodating monetary policy, a sales tax would almost certainly increase the price level by roughly the percentage it represents of consumption spending. That is, a 4 percent sales tax that applied to 75 percent of consumption expenditures would increase the general price level by about 3 percent.

Although this would be a one-time occurrence, not an annual increase, it might cause "ripples" of wage increases, because of cost-of-living adjustments ( ! ) and these could be reflected in further price increases. To the extent the sales tax replaced part of the income tax, there would be little offsetting reduction in prices or wages.

• Administrative costs:

Administration of a Federal value-added tax would require substantial additional resources. The Internal Revenue Service estimates that once the administrative program was fully phased in, the annual administrative costs would run about $700 million (at 1984 prices), or about 0.4 percent of revenues from a 10 percent broad-based value-added tax. To administer a value-added tax, the IRS would require approximately 20,000 additional personnel.

The Impossibility of Taxing Only Consumption

As we challenged, in the above issues “regressivity” and “effect on prices”, merits of the goal of taxing only consumption and freeing savings from taxation, it is relatively easy to see that a consumption tax might devolve also into a tax on income and therefore on savings as well. In short, that even if, for the sake of argument, we should want to tax only consumption and not income, we should not be able to do so.

A theoretical possibility: VAT eliminating Personal and Corporate Taxes

On the other side, and for the sake of theoretical argument ( never tried anywhere yet ), VAT might be able to improve economic performance by facilitating a reduction in other taxes. According to some advocates, the additional revenue generated by a VAT—$37 billion for every percentage point, according to the "Congressional Research Service15"—could be used to lower, or perhaps even eliminate, personal and corporate income taxes.

Hence, if the VAT was actually used to eliminate all income taxes, this theory would have considerable merit. There is no doubt that personal and corporate income taxes do more damage per dollar raised than a VAT would.

A positive way to go: VAT eliminating Personal and Corporate Taxes

One of the more interesting theoretical arguments for a VAT is that the new tax would improve economic performance by facilitating a reduction in other taxes. According to some advocates, the additional revenue generated by a VAT—$37 billion for every percentage point, according to the "Congressional Research Service15"—could be used to lower, or perhaps even eliminate, personal and corporate income taxes.

Hence, if the VAT was actually used to eliminate all income taxes, this theory would have considerable merit. There is no doubt that personal and corporate income taxes do more damage per dollar raised than a VAT would.

A national sales tax ( VAT ) thus should have several major advantages over the current combination of national income tax and states’ ( provincial ) taxes. If it were used to replace part ( or, eventually all ) of the income tax, a Federal sales tax would allow much lower ( or none at all ) income tax rates. By taking pressure off the definition and measurement of taxable income, a sales tax would help reduce income tax avoidance and evasion as well as lessen the incentive to shelter income from the income tax. Based on consumption, rather than income, a national sales tax ( e.g. VAT ) would not discriminate against saving the way the income tax does.

Accordingly, it may increase the level of private saving and generate a corresponding increase in capital formation and economic growth. A broad-based sales tax would almost certainly distort economic choices less than the income tax does. In contrast to the income tax, it would not discourage capital-intensive methods of production or risk taking and it would be neutral with regard to other major revenue sources.

At the state level, this system of exemption certificates applies only to goods purchased for resale or goods that become component parts or physical ingredients of produced goods; other purchases, such as machinery and equipment, are only exempt if specifically provided in the state statute. The end result is that not all business purchases are free of retail sales tax; about 20 percent of sales tax revenue is from taxing business purchases.

Another important advantage of the value-added form of sales tax is the fact that tax is collected as products move from stage to stage in the production-distribution process. Thus by the time a product reaches the retail stage, much of its total value has already been taxed.

To summarize: Theoretically, a VAT ( or national sales tax ) would be acceptable if it were combined with ratification of a constitutional amendment that permanently prohibits both the personal and corporate income taxes, however unlikely this scenario is.

( NOTE: In fact, as yet no nation has ever implemented a VAT ( or a national sales tax) and used the money to eliminate all income taxes. )

Positive and negative effects of VAT in EU

In supporting the VAT, Bartlett,a is senior fellow for the National Center for Policy Analysis, argues:

“….This is the best strategy tax economists have ever devised for raising revenue without investing a lot in enforcement and economic incentives. The V.A.T. is a kind of sales tax embedded in the price of goods. ... [T]he tax is largely self-enforcing. And because the tax is applied only to consumption, its impact on incentives is minimal. ...”( Bartlett, 2005 )

But is it self-enforcing? Since VATs continue to enter policy discussions, knowledge of how they've worked in countries that have used them can be helpful. According to this analysis in the Financial Times there are two main problems with the VAT in Europe where it has been widely adopted, fraud and complexity:

In an often cited article “Evasion and exemptions erode VAT’s own value added,” Financial Times (2006) says:

“…..In half a century, value added tax has taken the world by storm... But despite its reach, some are ready to declare it an idea whose time has gone….. VAT fraud has become pervasive and, at least in Europe, the tax is at a watershed. Can it survive in its current form? ...[I]t is in Europe that the weaknesses are at their most glaring. This month the European Commission launched an “in-depth debate” on whether VAT should be modified…….. European VAT is in a mess for two main reasons: its vulnerability to fraud and its complexity. Fraud, evasion and avoidance cost at least one in every 10 euros of the tax collected – roughly double that in other industrialised countries... VAT abuse takes many forms – most commonly the reluctance of traders in the black economy to have anything to do with the tax. But the biggest headache is sophisticated fraud.....”( ibid.)

The problem lies largely in the refund process.

" ... VAT is normally self-policing: everyone in the supply chain has an incentive to act as tax-collectors as they offset the VAT they pay their suppliers against the VAT they charge their customers. But in some circumstances, notably when exporting goods – which are VAT-free under nearly all national systems – businesses can claim refunds. ... This fraud ... has forced governments to consider drastic remedies. ... Germany and Austria are pressing for a “reverse charge” mechanism that would in effect turn VAT into a hybrid sales tax...."( ibid.]

As well as the administrative hassles faced by exporters, businesses are often left paying big VAT bills as a result of governments’ desire to exempt certain types of goods and services, such as education, from the tax. Some critics argue that governments should reduce, if not eliminate, exemptions and reductions.

Other Problems with VAT

• Expands the cost of government. Countries with VATs have a much heavier total tax burden than those without VATs. Before the creation of VATs, the burden of taxation in Europe was not that much larger than it was in the United States. However, since the late 1960s, when countries in Europe began to adopt VATs, Europe’s aggregate tax burden has increased by about 50 percent while the U.S. tax burden has remained relatively constant (Bickley 2005).

• Inadvertently increases income tax rates. One of the main arguments for the VAT is that it is a less destructive way to raise revenue. This is theoretically true, but irrelevant. In the real world, the VAT has been used as an excuse to increase income taxes as a way to maintain “distributional neutrality.” Indeed, income taxes in Europe today are higher than they were when VATs were implemented.

• Slows economic growth and destroy jobs. A VAT undermines economic growth for two reasons:

First, it reduces incentives to engage in productive behavior by driving a larger wedge between pre-tax income and post-tax consumption. Second, it facilitates larger government and the concomitant transfer of resources from the productive sector of the economy to the public sector, diminishing economic efficiency (Engen 1992).

Selected statistics of VAT in EU vs. USA taxes

VATs Associated with Higher Aggregate Tax Burdens

“Taxes as a Percent of GDP”:

• 1967 USA.... 25.3% / EU-15....25.5%

• 2002 USA.... 29.8% / EU-15....42.1%

Source: Organization for Economic Co-operation and Development, Revenue Statistics, 1965–2003 (Paris: OECD Publications, 2004)

Burden of Government ( Spending and Debts ): the U.S. vs. Europe

“Government Spending as Percent of GDP in 2004”:

• USA.... 35.7% / EU-15....47.6%

“Government Debt as Percent of GDP in 2004”:

• USA....26.6% / EU-15....50.1%

Source: Organization for Economic Co-operation and Development, OECD in Figures, 2004 ed., at www1.oecd.org/publications/e-book/0104071E.pdf (May 9, 2005).

Conclusion

Theory vs. actual state of affairs

There are obviously two contradicting views on the very basics of VAT. If the VAT was actually used to eliminate all income taxes, this theory would have considerable merit. There is no doubt that personal and corporate income taxes do more damage per dollar raised than a VAT would ( Guseh, 1977.)

However, no nation has ever implemented a VAT (or a national sales tax) and used the money to eliminate all income taxes.

Indeed, no government in the world—national, state, provincial, county, or city—has taken this step. No government has even eliminated just one of the two forms of income taxation (personal and corporate). The VAT always has been imposed in addition to existing personal and corporate income taxes ( Grier, 1989.)

Faced with this overwhelming real-world evidence, VAT advocates sometimes argue that the tax at least could be used to lower taxes on personal and corporate income. Just like the total replacement hypothesis, this partial-replacement hypothesis is an interesting theory, but it is equally implausible. All available statistics show that the aggregate tax burden on income and profits (a measure of the tax on personal and corporate income) has fallen slightly in the United States, but it has risen significantly in the European Union, and this increased tax burden on productive activity took place after VATs became ubiquitous ( Genetski, 1988.)

Classical economics’ considerations

Let us seek a help to this conundrum from a genuine free-market approach of Jean-Baptiste Say, who contributed considerably more to economics than Say's law.

Say was under no illusion that taxation is voluntary nor that government spending contributes productive services to the economy. Say pointed out that, in taxation, "……The government exacts from a taxpayer the payment of a given tax in the shape of money. To meet this demand, the taxpayer exchanges part of the products at his disposal for coin, which he pays to the tax-gatherers….." (Say 1880).

Eventually, the government spends the money on its own needs, so that ".....in the end . . . this value is consumed; and then the portion of wealth, which passes from the hands of the taxpayer into those of the tax-gatherer, is destroyed and annihilated....."( ibid. )

Note, that as in the case of many economists, such as Murray Rothbard, Say sees that taxation creates two conflicting classes, the taxpayers and the tax-gatherers.

"...Were it not for taxes, the taxpayer would have spent his money on his own consumption. As it is, the state . . . enjoys the satisfaction resulting from that consumption….."( ibid. ).

Taxation, then, for Say is the transfer of a portion of the national products from the hands of individuals to those of the government, for the purpose of meeting the public consumption of expenditure.” . . . It is virtually a burthen imposed upon individuals, either in a separate or corporate character, by the ruling power . . . for the purpose of supplying the consumption it may think proper to make at their expense…..”( ibid, p. 446 ).

But taxation, for Say, is not merely a zero-sum game. By levying a burden on the producers, he points out, taxes, over time, cripple production itself.

Writes Say: “…..Taxation deprives the producer of a product, which he would otherwise have the option of deriving a personal gratification from, if consumed . . . or of turning to profit, if he preferred to devote it to an useful employment. . . Therefore, the subtraction of a product must needs diminish, instead of augmenting, productive power……( ibid, p. 447 ).

J. B. Say's policy recommendation was crystal clear and consistent with his analysis and that of various comments on VAT: "…..The best scheme of [public] finance is, to spend as little as possible; and the best tax is always the lightest….."( ibid.,1880 ).

To this, there is nothing more to add.

References

ISBN links support NWE through referral fees

• Bartlett, B., "Why a VAT?," NCPP Idea House, March 11, 2005

• Bickley, James “A Value-Added Tax Contrasted with a National Sales Tax,” Congressional Research Service, March 23, 2005.

• Engen, Eric M. and Jonathan Skinner, “Fiscal Policy and Economic Growth,” National Bureau of Economic Research Working Paper No. 4223, 1992.

• Genetski,Robert J. Debra J. Bredael, and Brian S. Wesbury, “The Impact of a Value-Added Tax on the U.S. Economy,” Stotler Economics, December 1988.

• Grier, Kevin B. and Gordon Tullock, “An Empirical Analysis of Cross-National Economic Growth, 1951–80,” Journal of Monetary Economics, Vol. 24, No. 2 (September 1989), pp. 259–276.

• Guseh, James S. “Government Size and Economic Growth in Developing Countries: A Political-Economy Framework,” Journal of Macroeconomics, Vol. 19, No. 1 (Winter 1997), pp. 175–192.

• Kesselman, J., Keith Banting, and Ken Battle eds. 1994. “Public Policies To Combat Child Poverty: Goals and Options. A New Social Vision for Canada? Perspectives on the Federal Discussion Paper on Social Policy Reform. Kingston, CA: Queen’s University, School of Policy Studies. ISBN 0889116873.

• Kesselman, J. 1997. General Payroll Taxes: Economics, Politics, and Design. Toronto, CA: Canadian Tax Foundation. ISBN 0888081219.

• Rothbard, Murray. 1994. Consumption Tax : A Critique. Review of Austrian Economics. 7:2:75–90.

• Rothbard, Murray. 1977. Power and Market: Government and the Economy. Kansas City, KS: Sheed Andrews & McMeel. ISBN 0836207505.

• Rothbard, Murray N. 1988. Review of A. Chafuen, Christians for Freedom: Late Scholastic Economics. International Philosophical Quarterly. 28:112–14.

• Say, Jean-Baptiste A Treatise on Political Economy, 6th ed. (Philadelphia: Claxton, Remsen & Heffelfinger, 1880, pp. 412–415, 446); see also Murray N. Rothbard, "The Myth of Neutral Taxation," Cato Journal, No.1,Fall 1981,pp. 551–54.

• Rothbard, Murray N. 1981. The Myth of Neutral Taxation. Cato Journal. 1:551–54.

External links

All Links Retrieved December 12, 2007.

• VAT Related Services at the Open Directory Project
• VAT in INDIA
• What is VAT?: General overview
• An introduction to VAT
• German VAT
• VAT/GST sales tax rates around the world
• HM Revenue & Customs
• UK VAT Threshold Rates
• A Guide to the latest VAT news in the UK by PricewaterhouseCoopers

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