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How a Single Little Known "Tax" (Subsidy) Is Totally Wrecking America's Ability to Compete

Published 06/23/08 Economy In Crisis - Print Article
E-mail - editor@economyincisis.org

Editor's Note: The following is the first in a three part series about the debilitating effects of the VAT tax. Many of the statistics and examples are from “Dangerous Business,” a forthcoming book by economist Pat Choate, to be released on Aug. 12, 2008.

Part 1: How a Single Tax Is Wrecking The Economy.

Americans are losing their ability to compete in global trade because of the value-added tax (VAT). Foreign governments use this tax against United States producers as a means to prevent the importation and consumption of U.S. goods, while providing incentives for other countries to export their goods to the U.S. This was a tax loophole enacted after World War II to speed up European recovery, however is still used by 137 countries to exploit this advantageous position against American trade.

The VAT tax gives foreigners and their exports the upper-hand by providing incentives in the form of rebates equal to the indirect tax on the exported product. For example, the VAT tax rate is 19 percent in Germany; therefore the Germans receive a 19 percent rebate from the government on each product exported to the U.S. This acts as a subsidy for a product while encouraging the exportation of products to the U.S. However, the VAT tax imposes a punishment on U.S. exports by placing a VAT tax equivalent to VAT rate of the importing country. This means all U.S. exports are taxed 19 percent that enter into Germany, plus another 19 percent for the transportation fees of the good into Germany. The VAT destroys American industries’ ability to promote exports, while encouraging foreigners to sell their products to Americans – it must be amended.

In 2005, 94 percent of U.S. exports received a VAT tax. In the same year, foreign governments received rebates of $239 billion from the tax while collecting $131 billion from U.S. producers of goods and services.

It is not surprising that the U.S. has become a nation promoting imports over exports under these unfair and harsh tax conditions. It can be seen why some companies choose to move overseas to produce their product abroad to avoid this monstrous tax and gain the advantage of it in some cases. Because of this detrimental tax, American firms cannot compete worldwide.

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