NCPA - National Center for Policy Analysis

FAIR TRADE FOR U.S. BUSINESS

July 3, 2007

In 1955, foreign countries' Value Added Tax (VAT) rates on U.S. imports were only 2 percent to 4 percent. Since then, however, countries have caught on how to use the tax to cheat the United States, says syndicated columnist Phyllis Schlafly.

Consider:

  • The average VAT imposed by all our trading partners today is 15.7 percent of the cost of the good.
  • European Union nations average a VAT of 19.2 percent.
  • The VAT is one of the major factors causing the loss of 3.2 million manufacturing jobs since 2000 and the dramatic increase in our trade deficit to $763.6 billion in 2006.

This disparate treatment has proved harmful and costly, says Schlafly:

  • The refunds of indirect taxes amount to subsidies to foreign companies that export to the United States even though subsidies are supposed to be prohibited by World Trade Organization rules.
  • U.S. exporters must pay "direct" U.S. taxes, and then the so-called "indirect" tax at the foreign border in order to get their products and services admitted.
  • The VAT import tax is levied on the price of the "landed cost," which includes the costs of the product and transportation.

The silver lining, however, is the newly introduced Border Tax Equity Act.  Under this legislation:

  • If VAT charging countries refuse to agree to a reasonable negotiated solution, the United States would charge an offsetting assessment on imports of goods and services equal to the amount of VAT the foreign government rebates to its exporters.
  • In addition, the United States would issue rebates equal to the amount of VAT taxes that U.S. exporters are forced to pay on goods they sell to other countries.

Source: Phyllis Schlafly, "Fair trade for U.S. business the aim of House bill," Townhall.com, July 2, 2007.

 

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