Part III: Solutions to a Tax Devastating American Trade

Editor’s Note: The following is the third 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 III: Solutions to a Tax Devastating American Trade

Americans are losing their ability to compete in global trade because of the value-added tax (VAT). Foreign governments use this tax against U.S. producers as a means to prevent the importation and consumption of U.S. goods, while providing incentives for their countries to export goods to the U.S. The tax was created to rebuild a war-torn Europe after WWII, but now Europe is rebuilt and no longer needs to enact this unfair tax, burdening Americans. In 1968, three countries used the VAT, but by 2001, 25 nations enacted this tax to gain a leg-up on American trade.

This tax immediately places the U.S. in a system of trade where the opponents possess the upper-hand. U.S. producers cannot compete in a global market while other nations are rewarded for their exportation of goods.

In 2001, European countries had a VAT rate of 19.2 percent. By 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.

Pat Choate, economist and former running-mate of H. Ross Perot, recognizes U.S. trade policy is in shambles. Our government cannot stand up to the challenge of leveling the playing field. Choate sees that past efforts to amend the VAT tax (Click here to learn more about the VAT Tax in part 2 of the VAT tax series) have failed and offers a feasible solution.

Choate’s solution advises to create a tax on the imported services to offset the foreign advantage of the VAT tax. Once other countries drop the VAT tax on U.S. imports, the U.S. tax on imported services would also be lifted – creating an equal and fair system of trade.

America must follow Choate’s solution and create a tit-for-tat tax that creates a level playing field for U.S. trade; the future- and prosperity of the American economy may very well depend on it.

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