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Comment by rayiner | Hacker News Reader

Corporate tax is a red herring. Across the OECD, it makes up just 9% of tax revenue (just 6% in Sweden and Denmark). The US is about the same (8%).

If you want to complain about tax revenue, point to the fact that Americans don’t pay VAT (like everyone in Europe does) on all the cheap crap they buy on Amazon. Or in the case of California, complain about Prop 13 limiting the property taxes people pay on McMansions. (Which, after all, are what pay for your local government functions like fire service.)

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Corporate taxes are low in most countries today, but they used to be a huge source of revenue in the US: https://www.taxpolicycenter.org/statistics/corporate-income-...

The advantage of corporate taxes is they collect money from foreign investors which would otherwise leave the US. Lowering corporate taxes requires increases US taxes so it can lower them for foreign wealth funds etc.

Well, if those foreigners aren't using our services why are we taxing them?

The companies are using our services, which indirectly benefits these investors. Media companies for example benefit from US enforcement of copyright law. Similarly enforcement of contracts and private property, plus all the little things that allow the US to be such a prosperous society.

I think it's important to note that most western countries have gone through a neoliberal regime of tax cuts since ~1970. For example the corporate tax in Sweden was 52% in 1980 (albeit with generous deductions for various kinds of investments).

Yet Europe still does a way better job than the US in affordable education, universal healthcare, and environmental policy.

The US sets a very low standard. The downfall of the wellfare state in Sweden is very obvious.

We pay sales tax. What's so special about VAT vs. sales tax?

Unless you are arguing for a federal sales tax, which OK sure federal tax is great, except it doesn't pay for local services. Also, now you also have to argue about the regressive nature of sales tax in general.

One is embedded so you do not easily identify just how much all those free services cost you.

embedded taxes benefit the tax man and the easiest to make regressive thereby clawing back much of the money spent on services

Ya, Canada used to have a VAT like tax, and then got rid of it in the 90s.

My question was honest though. Is there something special (good) about VAT vs. sales tax that I'm missing? Because the OP implied we don't pay sales tax in the US, which is (generally) not true.

VAT is somewhat different in mechanics from sales tax, because it is collected along different points in the value chain. More important, VAT in Europe typically ranges from 20-25%, and has a broader tax base. In a typical European country, consumption taxes make up almost 30% of revenue, versus 17% in the US.

So you're arguing for an increase of our sales tax. That's different than saying we don't pay sales tax!

Now, I don't disagree that a mechanism that tames American consumption would be good, and is also counter cycle to the economy.

But the question remains unanswered: How about the effect of sales tax on people and families at the margins [0]? 20-25% sales tax is a lot for them. A sales tax rebate check at the end of the year like Canada does? $70 hardly covers the bite of the sales tax!

[0] Including my in-laws, so I'll admit this is a bit personal.

A VAT is different than a sales tax. And families at the margins would be better off with the increased social services we could provide with a European-style VAT, than the pennies we could collect by fighting to tax corporations more than they do in Europe.

It’s a middle class cop-out. The American middle class says they want to help those at the margins, but they don’t want to pay 25% VAT on MacBook Pros. They’re only in favor of increased welfare if Jeff Bezos is the one who pays for it.

Indeed. The US could very well fund a generous welfare state like Europe, but that won’t be done by increasing taxes on the rich, but rather on the middle class (like in Europe).

There are more solutions than a high VAT, and since it is a regressive tax, it is actually a bad solution. The fact that some countries with high VAT use the funds better than other countries use their tax income does not make it a good tax. Of course corporate income tax can never solve all tax shortfalls, but it is still a reasonable piece of the puzzle.

A few differences:

- VAT is applied to business to business transactions. Sales taxes are just applied to consumer transactions.

- Sales taxes are applied to total amount of sales. The amount of VAT that the user pays is on the cost of the product, less any of the costs of materials used in the product that have already been taxed.

- Since value is not generally created in a second hand sale. (Unless the item is restored) VATs are usually not applied to used/second hand items. Sales taxes are.

> VAT is applied to business to business transactions. Sales taxes are just applied to consumer transactions.

This is not true. The final user pays the sales tax. So if a company buys a bolt and uses it to make its product: no tax. If they buy bolts and build shelves to hold inventory: pay the tax.

>If they buy bolts and build shelves to hold inventory: pay the tax.

At least for Germany even that is not true. As a business all VAT payments are refunded (Vorsteuerabzug).

I'm sorry I wasn't clear: I was clarifying that all end consumers pay sales tax in the USA (for transactions subject to sales tax; not every jurisdiction has them, or has them for all products).

However your comment is about VAT and the end result is also the same: the Vorsteuerabzug only applies to goods sold on to a subsequent buyer.

So the business pays VAT on everything it buys (that is subject to tax), but when it sells something it collects VAT on the sale. It can then deduct VAT paid on the inputs to that sale (i.e. the bolts in my example). This is central to the concept of VAT thus is basically how it works in every country with a VAT/GST.

This is explained in the law itself: https://www.gesetze-im-internet.de/ustg_1980/__15.html

I think the relevant difference is that VAT is paid even if you are in a different EU country.

I'm in Denmark, where the rate is 25%.

I pay 25% on something I order from a Danish online shop.

I pay 25% on something I order from a large German online shop, even though the VAT rate in Germany is lower.

I pay 19% (the German rate) on something I order from a small German shop, to reduce the administrative burden on that shop.

(In every case the advertised price includes VAT, although the middle case may use 19% until I input a delivery address, depending on how they guess my location.)

My understanding is that, in reality, people pay 0% in the USA if they order from a different state.

You're supposed to report your online shopping when you do your taxes here every year.

Which no one does, so it’s irrelevant.

I do it (because I buy so little online). Also, Illinois (and maybe other states) published tables saying "if you don't want to calculate it, pay this amount instead."

Most states are now imposing sales tax on online retailers, so the point is pretty much moot now.

Okay, I stand corrected. Almost no one does.

I'm one of those weirdos that does pay the use tax. I've been paying it since it became a thing. It continually amazes me that no one else apparently does.

> My understanding is that, in reality, people pay 0% in the USA if they order from a different state.

That used to be the case, but online retailers now must collect sales tax for any state that demands it [0]. Many states have complicated rules on the matter, for details consult an attorney.

[0]: https://en.wikipedia.org/wiki/South_Dakota_v._Wayfair%2C_Inc.

I pay 0% VAT if I order from a country with VAT and ship to the US.

The key here is that when something is classified as "interstate commerce" different laws apply than if you're buying something in-state. Enforcement varies, and can be expensive, and the laws are catching up sometimes, and purposefully not present in others, depending on the state and their approach to interestate commerce.

As an American, I'm quite happy there is no Federal sales tax. There is no reason to capture value at that level and allocate at the Federal level. States already have these taxes, and are much better equipped (in terms of need / proximity - not in terms of functioning government at times) to allocate the money toward local services.

Amazon started to collect sales tax a while ago. https://en.wikipedia.org/wiki/Amazon_tax#targetText=On%20Oct....

VAT tax is regressive: https://www.taxpolicycenter.org/briefing-book/who-would-bear...

from your link

> Exempting, zero rating, or excluding certain essential consumption goods from the tax base (e.g., foodstuffs, medicine, health care) can reduce the regressivity of a VAT.

That's what's done in Europe.

It certainly does not eliminate it, and almost every EU country has only a lower VAT, not none, on some or all these items.

https://ec.europa.eu/taxation_customs/sites/taxation/files/r...

Germany has a reduced rate for certain goods but in practice it is pretty arbitrary and mostly the result of lobbying.

Note that even if it were applied entirely consistently and without bias it would still only reduce the regressivity, it wouldn't make it non-regressive.

If a person with low income buys a gallon of milk they pay the same VAT on it as a person with high income would. If they buy cheap off-brand cheese they pay the same VAT rate as they would pay for expensive luxury cheese (except they likely can't afford the latter).

VAT doesn't account for income inequality, it just makes everything more expensive for everyone. Income tax OTOH impacts high income households more than those with low income. At least in theory: in practice income tax (especially in the US) has massively gone down for high income households, again just affecting everyone equally like VAT does.

POTUS candidate Andrew Yang's foundation for his #1 policy/solution is a 10% VAT tax.

Edit: Curious why facts are downvoted? Does HN not like discussing solutions and people actively working on solutions?

I'm not against sales tax; there are many benefits to it.

However

A 10% sales tax is a 10% tax on poor people's disposable income since they have almost no savings. How do we square that regressive circle?

In Yang's case, the 10% VAT is accompanied by a $1000/month Universal Basic Income.

That should eliminate all the income from the VAT and then some, so the firefighters are still dropping your calls.

$ 1000/adultmonth = $ 12 000 / adultyear. -> requires $120 000 of disposable income spent per adult. Very few people spend $120 000 of VATable (A family making $300 000, a good income, doesn't spend anywhere near $120 000)

This assume everything is taxed under VAT. As Yang has discussed, necessities don't need to be taxed. Luxury items can have a higher tax.

In the UK at least a lot of "basic" things are exempt from VAT, although the rules are quite complex:

https://www.gov.uk/guidance/rates-of-vat-on-different-goods-...

In Europe they largely don’t try to square the circle, aside from maybe exempting necessities like food. They offer efficient, high quality welfare services to low income people in return for those taxes. (Of course, low income people get much more in services than they pay in VAT.)

But they do, in a way, by using those increased revenues to fund a comprehensive social safety net. If you just add VAT in the US, yeah it would be a disaster.

I almost never weigh in on political stuff. But, F* that. Do you want to be able to never afford anything? Because, that's a good start. What we really need to do is balance the budget by cutting back on the quantity and expensiveness of existing programs. The government needs to optimize. We are spending too much. Which are dirty words no one wants to hear or perform.

You’re right that VAT is regressive and the middle class would bear the brunt of it, but I encourage you to consider other ways to address the issue. “Cutting spending“ is almost always code for “cutting spending on stuff the middle class and poor need,” which only pits workers against workers. Rather than die in a circular firing squad, how else could the shortfall be explained? Look into stagnant wages, wealth inequality, and ask where all the productivity gains of the computing revolution have gone.

Not the parent poster, but we should probably start with our biggest outlays, and work down from there. I'm assuming that's military spending and entitlement programs. If I'm wrong, we can start with whatever the two largest outlays actually are.

I believe that Medicaid, Medicare, and Social Security make up close to 50% of the government's budget. Put military spending in there, and I'd be surprised if it didn't go over 75%.

Note that at all levels of government, spending is close to $7 trillion annually, with only $4 trillion from the federal government. Medicare and SS are together about $1.5 trillion. Defense is about $700 billion. Roads, education, schools, etc., make up most of the $3 trillion state spending.

It's called Goods and Services Tax (GST) in Canada. There was confusion when it was first implemented over what was or wasn't taxed. For example a muffin wouldn't be taxed but that same muffin if heated would be taxed.

My province was really raking it in. We paid a 10% provincial ("state") tax and then the GST on top of that tax. Yes a tax on a tax.

I am looking into https://en.wikipedia.org/wiki/List_of_countries_by_tax_rates and i dont see the numbers you mentioned.

Those are rates, not revenue. The OECD has profiles that show how much of each country’s tax revenue comes from different sources. For example Sweden: https://www.oecd.org/tax/revenue-statistics-sweden.pdf

They pay sales tax at the state and some times city level which is effectively VAT

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