VAT and the EU Welfare State

[stgreek]

If you think IBM screws Canadians, you should come to any European country....Just as an example,prices in the UK (considered among the cheapest European countries in laptops): The model 2373-CWU (A fairly decent model) costs $2599 to buy from Bill and a whooping $4826 to buy in the UK. That is TWO AND A HALF GRAND MORE!!!! What the f**k? Are they sending them in gold cases or something???

[ian]

(It's so tempting to call you Hary Enfield) I'm glad you said it's a fairly decent model - it's the one I bought, from Bill, who then FedEx'd it here to me in France - the amount I saved, even including VAT and shipping was pretty much as you stated - I believe France is actually more expensive than the UK - I'm not trying for any browny points - it seriously p****s me off to see, for instance, a Linksys Wireless router at the equivalent of 65€ in the US and we, in France, would have to pay 145€ - can someone try to explain this disparity please?

[JHEM]

Can you say VAT?

I knew you could.

Regards

James

[Greg Gebhardt]

(It's so tempting to call you Hary Enfield) I'm glad you said it's a fairly decent model - it's the one I bought, from Bill, who then FedEx'd it here to me in France - the amount I saved, even including VAT and shipping was pretty much as you stated - I believe France is actually more expensive than the UK - I'm not trying for any browny points - it seriously p****s me off to see, for instance, a Linksys Wireless router at the equivalent of 65€ in the US and we, in France, would have to pay 145€ - can someone try to explain this disparity please?

What are they doing with all the taxes they collect. It has to be going somewhere.

[stgreek]

Can you say VAT?

I knew you could.

Regards

James

James, if you are referring to my example, there is a problem with maths. VAT in Europe is around 18%. That means around $450 extra. Lets put extra shipping and handling charges as well.... Say $200? That puts as to $3200 which is REALLY far from $4850. The extra $1600 actually buys you another thinkpad is the us or another keyboard in the UK

[JHEM]

What are they doing with all the taxes they collect. It has to be going somewhere.

It's all going to Brussells!

Regards,

James

[JHEM]

James, if you are referring to my example, there is a problem with maths. VAT in Europe is around 18%.

The way VAT was explained to me many years ago was that manufacturers in the EU pay VAT on finished materials incorporated into their products, while raw materials are tax exempt.

It's the untaxed portion of the product that is represented by the 18% VAT rate for the "Added Value" the finished product has over the raw materials.

Machines and devices built outside of the EU (or a select number of countries) have not been taxed on either raw materials OR manufactured devices incorporated into the finished product, and the manufacturer has to report all of the intermediate steps in the manufacturing process at which they would normally be responsible for VAT and THEY have to pay it. So in these instances the total VAT that was paid for the product could represent as much as 50% of the final cost to the consumer.

Even for things manufactured in the EU, this "hidden" VAT can represent as much as 25% of the price a consumer pays. There is almost nothing you can buy over there that I can't find here in the US for 25% to 50% less BEFORE VAT is added to the equation, including most staples. I've had this conversation many times with my relations in DK and the UK and we've never been able to come to figure out the reason for this discrepancy.

The money to pay for the semi-socialist benefits most EU natives enjoy has to come from somewhere! An income tax proportional to the level needed to maintain these benefits would quickly result in revolution.

Regards,

James

[edelrc]

James, I am an advocate of that "semi-socialist" system that we have in Europe... (BTW, we prefer to call it 'universal' system!)

Health Insurance and Social Security are two institutions we are proud there, and that worldwide very few experts see the American ones as one to imitate. However, I disagree in the methods of collecting the funds that we practice in Europe.
70% taxes in gas, taxes in food of 15-22% etc, are extremely regressive taxes, that hurts more the lower your income is. In the US there are not taxes in food and low % on other items. These methods are usually much more progressive.

If I could take with me four things from the US to Europe, those would be;
-The Community College concept (in europe we had created a elitist higher education where only the young and few can attempt)
-The eternal empowerment that people get here that they can do more (even if for many it never materializes)
-The concept of service as an investment… as opposed as an expense!
-Most of the taxation system

[JHEM]

I'm also an advocate of most of the support provided in the EU, I just have some problems with how it's funded.

I don't want to hi-jack this thread, so I'll show some restraint and save it for another day.

But I do agree that taxes at the consumer level hurt those most who are least able to afford it.

Like your list!

Regards,

James

[Moroner]

VAT is essentially a sales tax. It is only collected differrently, with each producer getting a rebate on the sales tax for his inputs. This way companies have to report on both their purchases and their sales, with control built in until it reaches the customer. That way, VAT can be charged at 25%, as in some countries, while the sales tax in the US is limited to about 7%, because otherwise tax evasion gets too high.

I do not believe the price differences have too much to do with different tax levels, but much more with sales strategies. Just as German car manufactures had been selling their cars for a premium in the US, it is the other way around with laptops. Fortunately, that is slowly coming to an end. E.g., Dell asks pretty much the same prices in the US and the EU (before taxes), and I recently bought a Linksys WRT54g for 70€ in the Netherlands. Maybe I should tell them to expand to France for the rich pickings...

[JHEM]

Moroner,

A few minor points. One, there is no US sales tax, only local sales taxes imposed by states and municipalities that range from Zero to approx. 8% and has absolutely nothing to do with tax evasion.

Two, most premium level autos built in the EU sell for less here in the US than a corresponding model in the EU. Vehicles in the premium/luxury class in the US have many more added features as standard equipment than a comparable model offered in the EU.

Gasoline for our cheaper cars is approx. one half the cost of gas in the EU, almost all of the difference being represented by (what else?) taxes.

If, as you say, producers receive a rebate on the VAT they pay in the manufacture of an item for sale, doesn't that mean that the tax is simply postponed until purchased by the consumer? Who therefore pays VAT on an artificial value, i.e. the cost of manufacture as well as the profit to the seller? Where's the "Added Value" of the seller's profit?

VAT is an arbitrary system that punishes the purchaser, plain and simple, and is a way to bypass having the state tax corporations by screwing the consumer!

Regards,

James

[Moroner]

James,

I am afraid I have been a bit too tight in my posting. What I should have mentioned was that there are several studies that show that once you hike a sales tax above 7%, sales tax evasion becomes a problem. Currently about 3%-5% of the sales tax revenues in the US are spent on enforcement. Raise the rate, and enforcement costs balloon.
As you have correctly observed, VAT is a sales tax, paid in the end completely by the consumer. The only difference is the built-in control mechanism, which allows VAT to be raised much higher than a sales tax, and is the reason the EU uses VAT.

If you are interested in the topic, "Taxing ourselves" (http://www.amazon.com/exec/obidos/tg/de ... 0262692627) is quite a good discussion on the different ways of raising money for the state.

Unfortunately you are quite right about the current cost of cars, and if the shipping costs were not so high, I would buy my next car in the US. And I could only wish that taxes on petrol here were actually as low as you stated. Currently about 70% of the price of petrol is tax.

[JHEM]

I am afraid I have been a bit too tight in my posting. What I should have mentioned was that there are several studies that show that once you hike a sales tax above 7%, sales tax evasion becomes a problem. Currently about 3%-5% of the sales tax revenues in the US are spent on enforcement. Raise the rate, and enforcement costs balloon.

Then, given the fact that the lowest VAT is 16% and the highest 25% AFAIK, they must be spending an enormous amount on enforcement!

As you have correctly observed, VAT is a sales tax, paid in the end completely by the consumer. The only difference is the built-in control mechanism, which allows VAT to be raised much higher than a sales tax, and is the reason the EU uses VAT.

I fail to see any "control mechanism" beyond the fact of pay the tax or you don't get your purchase!

If you are interested in the topic, "Taxing ourselves" (http://www.amazon.com/exec/obidos/tg/de ... 0262692627) is quite a good discussion on the different ways of raising money for the state.

That is about the US federal tax code and is not pertinent to a discussion about VAT.

Unfortunately you are quite right about the current cost of cars, and if the shipping costs were not so high, I would buy my next car in the US. And I could only wish that taxes on petrol here were actually as low as you stated. Currently about 70% of the price of petrol is tax.

Have to pay for all those nationalized railroads someway! They're certainly not spending the tax money on highways or infrastructure.

[edelrc]

The percentage of the TOTAL amount of taxes collected does not differ much between the US and EU (around 23% in US and 25% in EU I', trying recall). The collecting methods is what is different.
Yes, we are wasting much with bad govermental management, but the US military is even ahead of most of european govermental services when it comes to waste. Priorities appear to be different too.

Moroner also touched a very realistic point; tax evasion. That is one more reason more for waht I am against taxes beyond 5% per product. It is not only highly regresive but it is a high incentive for tax evasion. In south Europe, the underground economy reaches 20%+ (mostly on services sector!)
It does not only the state looses those moneys, but the competitive advantage of those who work in underground economies hurts what other wise, could be prosperous companies. Everyone, looses here!!!

[JHEM]

Total amount of taxes on what? Income, purchases, etc., what?

Your statement is simply incorrect on it's face. The differing tax structures throughout the nations of the EU and the states of the US, as well as overall federal level taxes, don't bear simple comparison.

Given the fact that the income tax rate in some EU nations can exceed 75%, while there will still be VAT of as much as 25% on all purchases, your averages aren't supported by facts.

Regards,

James

[Moroner]

Then, given the fact that the lowest VAT is 16% and the highest 25% AFAIK, they must be spending an enormous amount on enforcement! ... I fail to see any "control mechanism" beyond the fact of pay the tax or you don't get your purchase!

There are two mechanisms by which a VAT reduces enforcement costs. The first is that every buyer in the value chain has an incentive to report on the tax owned by his suppliers, so that he can claim VAT credit on it. The other is that if a business decides to evade VAT, only its added value gets untaxed, while the VAT on its inputs remains with the state.

"Taxing ourselves" actually spends several pages on VAT as an alternative for the US, but listening to you, I guess there is not enough political support to introduce it.

Personally, I believe you can't discuss taxes in isolation, you need to look at how best to spread the burden in general, and ensure that you restrict the role of the state sufficiently. And I like the idea of taxing consumption to encourage investment.

According to 2001 OECD data, the tax ratio in the US was 30% of GDP, and 40% in the Euro area. While headline rates in Europe are quite high, the tax code is so full of holes that actual rates look much better. But of course that means you have to waste your time on becoming tax efficient

[edelrc]

Moroner was closer to reality:
These are numbers for 1987 (Sorry for not having more recent ones...):
State...........%ofGDP
USA-----------30.0
Australia------31.3
Italy-----------36.2
UK-------------37.5
Germany------37.6
....
Denmark------52.0
Sweden--------56.7
US Department of Commerce 1991.

It may look at lot, but be aware that 15% of US GDP is on healthcare (OCDE 1998), an most of it in Europe is included this expenditure with Taxation. It the US, most of it is considered private.

[JHEM]

1999 - http://www.oecd.org/dataoecd/34/51/1907708.pdf You're both WAY off!

VAT is simply a means of shifting the tax burden from corporations and the monied classes (bourgeoisie) to the backs of the working stiffs (proletariat). Oversimplification? Not really.

If the system works SO well and the interim tax costs can be shifted to the ultimate consumer, why does EVERYTHING cost so smegging much on your side of the pond? Rhetorical question, as we all know that the costs are necessary to maintain the predominant "cradle to grave" welfare states that comprise the original EU.

Nor has anyone ever been able to successfully explain to me how a seller's profit margin can be correctly added into a Value Added Tax (Mehrwertsteuer)! What "value" has the seller added to the product?

As to enforcement, the US enjoys one of the highest voluntary income tax compliance ratios among all developed nations.

Regards,

James

[edelrc]

James, now I'd got confused myself!
I am AGAINST VAT type of taxes... (mostly at those desorbitant european rates.) The reasons that I have are the same ones you exposed, also because of the incentive that it generates for underground economy and other social ills.
I consider myself an ecologist and I do bike as much as I can, save energy etc. but even I am against big taxation on fuel (now they try to shell us in Europe that politicians had imposed big taxes on fuel so we save energy!... I would believe that if they had put the revenues into alternative energy...

Regarding the numbers no one is wrong. One is % of GDP, another is the % of Income Tax +SS on Gross Salary. Income taxes are around 40% of te source of revenue for Federal arks and 15% for the State's (SS is also 40% and 10% respectivaly) They are not much relation so.
How we started to discuss about these numbers when they are not related to VAT???

I think Moroner is against VAT as the best way to collect revenues too? Aren't you?

[Moroner]

I prefer consumption taxes to income tax, but I believe that the way VAT is currently collected in Europe leaves much to be desired. Since VAT is inherently a regressive tax, it must be accompanied with something like an earned income tax credit to counteract that. Here Europe should be doing more. Also the VAT on a Thinkpad is so high that for that money, I could collect mine in person from Bill (always wanted to see his famous shipping department), and still have hundreds to spare. In other words, for items worth more than one or two thousand that you can carry in your hand-lagguage, tax evasion and fairness becomes a problem again.
The rate is high enough already, I would prefer Europe to cut through its hundreds of billions of subsidies annually, and lower rates.

[friedrich-eugen]

Sorry JHEM,

but I think You' ve been caught standing on the wrong one of Your two legs...

There are differences in prices and taxes between the two (US & EU), all right. But these do not explain the whole difference shown.

As in the example with the thinkpad US/France, You'll have to take for sure, that IBM as all international companies adjusts prices to local market conditions.

In the case of thinkpads that means,
(1) there will be fewer french tps or german tps or british ones sold,
(2) they are top of the pops in the market, first class standing
(3) enough consumers willing to pay a premium price can be found.

So buying a thinkpad in the US, paying VAT and accomodating it to europe may still be cheaper than buying at home. This remaining difference can not be "thrown" at the old european welfare state, it is in the responsibility i. e. at the disposal of big blue.

It is so even if You accept that administering a international firm in the EU means administering a firm in more than 16/25 countries.

This said, it does not imply that eurpean government or regulation etc is efficient or "slim", but it does only explain a (smaller) part of the difference

As for the economics of taxation, of public choice and government and the implications of traditions in political thinking - do create a different thread, please, bumpers built in

Happy trails Friedrich-eugen

[JHEM]

Sorry JHEM,

but I think You' ve been caught standing on the wrong one of Your two legs...

Wouldn't be the first time Fritz, nor probably the last.

I accept the fact that IBM can, and will, charge whatever the market can bear when it can, but your response doesn't explain the overall anomaly in costs of consumer items over here vs. over there.

There is almost nothing you can purchase in the original EU that I can't purchase cheaper over here, consumables and comestibles excepted, we're talking durable goods here. Nor am I saying that I can purchase a "generic" item for less than you.

I'm saying that in many instances the same Mercedes made in Stuttgart or the same Saab made in Trollhattan can be purchased for less over here.

Regards,

James

[friedrich-eugen]

JHEM,

Do You know, that I hate to be called Fritz? (Allthough my best friend used to, just use the other one) ...

To say it flat and right out: I do believe that the industrie is just taking what it thinks it can... (that is the market place)

The market plaxce in the US is (1) larger, therefore more attractive to producers from all over the world, (2) less divided into submarkets (countries, languages) and therefore there is (3) more competition that keeps prices down.

Overall percentage of government/welfare expenses of GrossNationalProduct (GNP) does not explain the difference. These macroeconomic measures are rather good indicators as they are of comparable construction and they are reliable, as it is far to difficult to "cheat" them.

What may make a difference anyway is regulation in all respects and on all levels. Regulation makes production and services more expensive over here than probably anywhere else in this world. In this respect You 'll find local authorities, national governments and the EU united .

This, too, might be a thread You might need virtual protection for moderating as well as participating users

Friedrich-Eugen

[JHEM]

Do You know, that I hate to be called Fritz? (Allthough my best friend used to, just use the other one) ...

I didn't before, but I do now! Es tut mir wirklich Leid. It won't happen again.

Mit besten Grüßen,

James

[friedrich-eugen]

James,

You 're welcome !

(I wasn't reproaching, anyway)

[lilserenity]

ANother injustice is a normal McDonalds double cheeseburger in the USA this year costs 99c. In the UK it's 99p. That's a whole 79c more. Awful.



Well i'm sure it was 99c, I don't have McDonalds very often, maybe about three-four times a year, since I'd rather stay a size 9/10

Vicky

[ian]

Two words in your first sentence summed it all up for me - 'McDonalds' and 'awful'

[BillMorrow]

i feel compelled to add to this very interesting thread on taxation and hamburgers that anyone who thinks the world is fair has a big surprise coming at him or her..

justice comes out of the barrel of a gun and i think fairness is following close behind..

thus ends my cynical comment at 4am..

[friedrich-eugen]

Bill,

W. Earp and Doc Halliday are still around, won't they ?

...

Looking at the mess that is being created alll over from a still peaceful place in "Old Europe" - from one of the homes of "Hamburgers" (the city of Hamburg) - I feel compelled to believe in the virtues of fairness, compassion and justice ... those values contained in a document called the universal declaration of human rights ... and a firm stand.


I hope You and Your wife are well and safe, Bill

Sincerely Friedrich-Eugen