Difference between revisions of "Value Added Tax"
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The tax is paid at each stage of production, but a credit is received for tax paid on inputs. For example, assuming a VAT rate of 10%, if a company sold its product for $100.00 and the cost of inputs to make that product were $80.00, they would have to pay $10.00 less an input credit of $8.00 to account for the VAT paid by their suppliers. | The tax is paid at each stage of production, but a credit is received for tax paid on inputs. For example, assuming a VAT rate of 10%, if a company sold its product for $100.00 and the cost of inputs to make that product were $80.00, they would have to pay $10.00 less an input credit of $8.00 to account for the VAT paid by their suppliers. | ||
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| + | While some conservatives may mistakenly assume that the VAT tax is "more optimal" because it is a regressive tax, in reality, the VAT tax is similar to a corporate net income tax, except broader in the sense that certain items like labor, rent, and capital, for which a VAT tax has not previously been paid on, are not deductible.<ref>[http://www.taxpolicycenter.org/taxtopics/encyclopedia/VAT.cfm Tax Policy Center - VAT]</ref> [[FairTax]], which supports a national sales tax, is opposed to a national VAT tax.<ref>[http://www.fairtax.org/site/PageServer FairTax]</ref> | ||
Revision as of 18:20, May 20, 2010
A Value Added Tax (VAT) is a national sales tax paid by companies based on the value they add to a product at various stages of production or distribution. It is common in Europe but has been rejected by the U.S. Congress.
The tax is paid at each stage of production, but a credit is received for tax paid on inputs. For example, assuming a VAT rate of 10%, if a company sold its product for $100.00 and the cost of inputs to make that product were $80.00, they would have to pay $10.00 less an input credit of $8.00 to account for the VAT paid by their suppliers.
While some conservatives may mistakenly assume that the VAT tax is "more optimal" because it is a regressive tax, in reality, the VAT tax is similar to a corporate net income tax, except broader in the sense that certain items like labor, rent, and capital, for which a VAT tax has not previously been paid on, are not deductible.[1] FairTax, which supports a national sales tax, is opposed to a national VAT tax.[2]