Speaker of the House, Nancy Pelosi has introduced the idea of implementing a European style "Value Added Tax" or VAT in the US to help cover the Health Care bill. On PBS's "The Charlie Rose Show", Speaker Pelosi said that a New Value-Added Tax (VAT) is "on the table" to help the U.S. address its fiscal liabilities.
According to Wikipedia: Value added tax (VAT), or goods and services tax (GST) is a consumption tax (CT) levied on any value that is added to a product. In contrast to a sales tax, VAT is neutral with respect to the number of passages that there are between the producer and the final consumer; where sales tax is levied on total value at each stage (though in US and many other countries sales tax is only charged at final sale to the final consumer and use tax final user, thus there are no sales taxes paid at wholesale or production level), the result is a cascade (downstream taxes levied on upstream taxes). A VAT is an indirect tax, in that the tax is collected from someone who does not bear the entire cost of the tax.
The Speaker of The House suggests that a value-added tax (VAT) would level the playing field between U.S. and foreign manufacturers.( In many instances, foreign manufacturers do not have the issues of healthcare or pensions as an added cost when importing goods and products into the USA).
"They get a tax off of that and they use that money to pay the healthcare for their own workers," Pelosi added, using the example of auto manufacturers. "Their cars coming into our country don't have a healthcare component cost'.
"Somewhere along the way, a value-added tax plays into this. Of course, we want to take down the healthcare cost, that's one part of it," the Speaker added. "But in the scheme of things, I think it's fair to look at a value- added tax as well."
Pelosi said that any new taxes would come after the Congress finishes the healthcare debate and could come as part of a larger overhaul of the federal government's tax code. Pelosi emphasized that any reworking of the tax code would not result in an increase in taxes on middle-class Americans.
Speaker Pelosi has not fully explained her plan or how Middle America will not pay for these taxes. According to Wikipedia, "Personal end-consumers of products and services cannot recover VAT on purchases, but businesses are able to recover VAT on the materials and services that they buy to make further supplies or services directly or indirectly sold to end-users. In this way, the total tax levied at each stage in the economic chain of supply is a constant fraction of the value added by a business to its products, and most of the cost of collecting the tax is borne by business, rather than by the state. VAT was invented because very high sales taxes and tariffs encourage cheating and smuggling. Critics point out that it disproportionately raises taxes on middle- and low-income homes."
If the VAT is based on the UK model, manufacturers will have to pay taxes for any materials they work with, but will be able to recover that money at the end of the year. This will affect different companies in different ways.
How will this affect your company and manufacturing process?
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