An update on Value Added Tax usage is provided by the Organization of Economic and Community Development in “OECD Consumption Tax Trends, 2014; VAT/GST and Excise Rates, Trends and Policy Issues.”
VAT is the world-class tax designed for international trade. Over 160 countries have implemented VAT to neutralize the cost of government for goods and services that cross borders. Under GATT rules (General Agreement on Tariffs and Trade), Value Added Taxes are added to imports to equalize the burden of government for imports and domestic production. Likewise, VAT’s are subtracted from exports…to remove the cost of the exporting country’s government from the price/value comparison of goods and services.
The unweighted average VAT rate of the OECD countries (excluding the U.S.) is 18.7 and for the major U.S. trading partners varies from 5% for Canada and Japan, to 19% in Germany, 19.6% in France, and 20% in the United Kingdom. China, which is not an OECD member, has a 17% VAT. In the OECD countries in Europe, Value Added Taxes raise 20.2% of total tax revenue on average, equivalent to around 6.6% of GDP.
For the full OECD report see: http://www.oecd-ilibrary.org/taxation/consumption-tax-trends-2014_ctt-2014-en
As the above statistics amplify, the U.S. is the outlier in not employing a VAT. This could change, as the new Congress promises to reconsider tax reform. Readers of this website know that VATinfo advocates 100% replacement of the Corporate Income Tax by a VAT.
This sweeping reform would make U.S. goods more competitive abroad and at home. The CIT has been corrupted with loopholes, a veritable Swiss cheese tax code that now barely collects 8% of federal revenues, down from 32% in 1952. VAT replacing the CIT would cleanly end the double-taxation of dividends. Multi-national corporations stashing profits abroad to avoid the CIT would return overseas capital to domestic banks. All these benefits would stimulate the economy and grow domestic jobs. The regressive impact could easily be addressed via the Personal Income Tax with credits.