The following article was listed on Manufacturing & Technology News of August, 28, 2009

Once More: The Virtues Of A Consumption Tax

The United States needs to adopt an entirely new tax system that allows the country to be competitive in global markets, according to Charles Blum, president of the International Advisory Services Group in Washington, D.C.

The United States is not over taxed, but is “badly taxed,” according to Blum. The tax burden in the United States accounts for 25.4 percent of total GDP, compared to 40.3 percent of GDP for the European Union’s 15 member states. “Our tax system relies too heavily on non-border adjustable income taxes,” according to Blum. “This hurts American’s ability to save and invest domestically.” Because other nations employ a consumption tax, U.S. exports are taxed twice and imports escape any taxation, making it advantageous to produce offshore.

The United States is the only country among 150 nations that does not have a consumption tax. All of these other nations apply a consumption tax to their imports, which amounts to a double tax burden on U.S. exports. To make matters worse for American producers, foreign countries rebate their consumption taxes to their exporters, while the U.S. refuses to apply an offsetting tax on imports.

The result: the U.S. tax disadvantage in international markets is estimated at $474 billion. This is a “self-inflicted wound” that has led to massive U.S. trade deficits and the need to borrow trillions of dollars from foreign countries, according to Blum.

The only way the United States can counter the advantage other countries have over American producers is by joining the rest of the world and adopting a consumption tax-based system. This is the “only feasible option,” says Blum.

Such a system would shift the tax burden away from income and onto consumption, allowing for a simplification of the U.S. federal tax system. A boarder adjustable consumption tax needs to be at a level that is high enough to impact unfair trade flows. A value-added tax in the range of 15 to 20 percent on all internationally traded goods would do a great deal of good beyond trade. It would enable tax cuts for tuition, health care and other non-tradable items and would eliminate the need for most personal income taxes on families making less than $100,000. A value-added tax system could eliminate onerous corporate taxes on net revenues below a certain level and could enhance new investment in plant and equipment by replacing depreciation with expensing, “allowing for immediate, 100 percent write-offs on capital investments,” says Blum. “Expensing bonuses of more than 100 percent would stimulate even faster investment.”

A value-added tax would provide Americans with strong incentives to save and invest in the United States. “Business would have fewer penalties to hire additional workers,” says Blum. “The economics of small businesses in all sectors — manufacturers, service providers and farmers and ranchers — would be
strengthened.”

Millions of individuals and most small businesses would not have to file tax returns, saving them billions of dollars in accountants’ fees. And a consumption tax-based system would make tax avoidance harder, “ensuring an improved fairness for law-abiding citizens,” says Blum.

For more information, go to http://iasworldtrade.com