Trump and Musk’s DOGE purge sees 6,700 IRS staff fired

[Martin Everson]

I am not sure if I am understanding correctly. Or if I am being understood correctly.

What I was proposing is that instead of 25% duties, it would be possible to introduce a 25% VAT. With VAT, I mean a value added tax as in the EU or Swiss VAT of today. Not a sales / goods / turnover tax as the US knows it or Switzerland knew it until 1994. As with the all VAT, imports and sales are taxed (in the EU called VAT on Importation, Einfurumsatzsteuer, etc.).

Quick example, when A imports goods for 100 USD, he pays 25 USD VAT on importation. A then processes them (wages are paid) and resells to a customer for 200 + 50 USD VAT (remitting 50 USD to the government but getting 25 back for the import paid). In essence, 50 USD have been paid to the government, 25 of which for the import and 25 of which for the labour / profit generated while being processed at B.

Now, I further propose to ablish salary taxes / personal income taxes. Why? Because as per the above example, the guy working on the goods (B) did in fact already pay for it. That's the 25 USD that he paid on the 100 USD profit generated.

With those two measures, the net effect would be that the country basically has a 25% duty on all imports without the hassle of making other countries angry.

There are various side-effects that would have to be addressed, among others that basically no tax would be paid for work performed on export goods, residents would be incentivised to spend their money abroad instead of at home, corporate profits would have to equally be lowered as the VAT would charge, etc.

Your not explaining yourself well. Please just share with us your calculations on how the 25% regime will cover the US federal spending needs?

 

[JohnnyDoe]

I am not sure if I am understanding correctly. Or if I am being understood correctly.

What I was proposing is that instead of 25% duties, it would be possible to introduce a 25% VAT. With VAT, I mean a value added tax as in the EU or Swiss VAT of today. Not a sales / goods / turnover tax as the US knows it or Switzerland knew it until 1994. As with the all VAT, imports and sales are taxed (in the EU called VAT on Importation, Einfurumsatzsteuer, etc.).

Quick example, when A imports goods for 100 USD, he pays 25 USD VAT on importation. A then processes them (wages are paid) and resells to a customer for 200 + 50 USD VAT (remitting 50 USD to the government but getting 25 back for the import paid). In essence, 50 USD have been paid to the government, 25 of which for the import and 25 of which for the labour / profit generated while being processed at B.

Now, I further propose to ablish salary taxes / personal income taxes. Why? Because as per the above example, the guy working on the goods (B) did in fact already pay for it. That's the 25 USD that he paid on the 100 USD profit generated.

With those two measures, the net effect would be that the country basically has a 25% duty on all imports without the hassle of making other countries angry.

There are various side-effects that would have to be addressed, among others that basically no tax would be paid for work performed on export goods, residents would be incentivised to spend their money abroad instead of at home, corporate profits would have to equally be lowered as the VAT would charge, etc.

@Martin Everson @void I definitely would not recommend a finance transaction fee. I think this has been discussed in detail recently in Switzerland, while there are valid arguments for it, I think the over all effects lead to massive inefficiencies as it incentivices inefficient behaviour of market players, not to mention that it could easily be avoided.

What we’ve got here is pie in the sky economics slathered with confused terminology. It jumbles together tax systems that have zero business being in the same conversation, skips over real world policymaking entirely, and all together misunderstands how VAT functions.
If this garbage became policy it would gut state budget, turbocharge wealth inequality, and basically hand out engraved invitations to dodge taxes.

 

[Martin Everson]

Tax revenue could drop by 10 percent amid turmoil at IRS​

https://www.msn.com/en-us/money/tax...by-10-percent-amid-turmoil-at-irs/ar-AA1Bs7Yp

 

[daniels27]

Your not explaining yourself well. Please just share with us your calculations on how the 25% regime will cover the US federal spending needs?

I was picking up on the latest Trump ideas of 25% duties combined with no personal income tax below $150k and his corporate tax cut from his first term.

The rough idea is to replace the personal income tax (below $150k) with a VAT. With a 25% VAT as an example, if $1250 are spent for the purchase of an item in a shop, $250 go the government in form of VAT. (As most salary below $150k is spent, that is basically a replacement of the current income tax.)

As we all know, Trump already lowered corporate taxes during his first term and is contantly playing with import duties, upsetting trade parties. Hence the second rough idea. With the VAT in place, goods/services sold domestically would be subject to VAT when sold. Looking at the value chain of a $500 item being imported to the US and then sold for $1000+$250 VAT, it can split into the import cost of $500 and $500 of domestic work performed and profit (noting that profit can occur in both domestic and foreign companies). By lowering pesonal / corporate taxes, the VAT effect on domestic work and profit is basically negated, roughly leaving a new duty of 25% (and as a nice side-effect a 25% tax on the profits of foreign companies selling in the US).

Again, there are numerous side-effects to be addressed. But I am trying to bring attention to the missing VAT in the US (state sales taxes aside), which for example makes it very attractive for foreign companies to sell import goods and services there without paying any tax, while the EU gets a good junk of VAT from Chinese sellers selling on Amazon.

 

[Martin Everson]

I was picking up on the latest Trump ideas of 25% duties combined with no personal income tax below $150k and his corporate tax cut from his first term.

The rough idea is to replace the personal income tax (below $150k) with a VAT. With a 25% VAT as an example, if $1250 are spent for the purchase of an item in a shop, $250 go the government in form of VAT. (As most salary below $150k is spent, that is basically a replacement of the current income tax.)

As we all know, Trump already lowered corporate taxes during his first term and is contantly playing with import duties, upsetting trade parties. Hence the second rough idea. With the VAT in place, goods/services sold domestically would be subject to VAT when sold. Looking at the value chain of a $500 item being imported to the US and then sold for $1000+$250 VAT, it can split into the import cost of $500 and $500 of domestic work performed and profit (noting that profit can occur in both domestic and foreign companies). By lowering pesonal / corporate taxes, the VAT effect on domestic work and profit is basically negated, roughly leaving a new duty of 25% (and as a nice side-effect a 25% tax on the profits of foreign companies selling in the US).

Again, there are numerous side-effects to be addressed. But I am trying to bring attention to the missing VAT in the US (state sales taxes aside), which for example makes it very attractive for foreign companies to sell import goods and services there without paying any tax, while the EU gets a good junk of VAT from Chinese sellers selling on Amazon.

So you cannot answer the below question which I asked you above? Just say so and we can leave it alone. I mean if you propose something at least have some rough maths in mind as to how it could economically work in real world.

Please just share with us your calculations on how the 25% regime will cover the US federal spending needs?

 

[daniels27]

Please just share with us your calculations on how the 25% regime will cover the US federal spending needs?

I don't have exact numbers, but my rough estimate would be that a 25% VAT, retail sales would be in the order of the current individual income taxes, 2.4T USD.

2024 individual income taxes were 2.4T. Walmart made 532B at at retail market share of 9.51%, giving an estimate 5.6T retail sales. Accouting for probably numerous exemptions, if 20% can be collected, it would be 1.1T.

Taking into account all non-retail transactions with end consumers, my assumption is that the total VAT collected would exceed the total amount of individual income taxes. The data for Germany at 19% VAT and comparable income taxes are here:
https://www-genesis.destatis.de/datenbank/online/table/71211-0001/table-toolbar

 

[Martin Everson]

I don't have exact numbers, but my rough estimate would be that a 25% VAT, retail sales would be in the order of the current individual income taxes, 2.4T USD.

2024 individual income taxes were 2.4T. Walmart made 532B at at retail market share of 9.51%, giving an estimate 5.6T retail sales. Accouting for probably numerous exemptions, if 20% can be collected, it would be 1.1T.

Taking into account all non-retail transactions with end consumers, my assumptit.on is that the total VAT collected would exceed the total amount of individual income taxes. The data for Germany at 19% VAT and comparable income taxes are here:
https://www-genesis.destatis.de/datenbank/online/table/71211-0001/table-toolbar

When US total retail sales in 2023 was $7.22T and lets says $5.6T figure you gave for 2024. How does $1.1T help the US...lol? And why 20% instead of 25%?

US Federal spending alone in 2024 was $6.8T. Total revenue in 2024 was $4.9T leading to a $1.8T fiscal deficit for US. See below and inform yourself on the fiscal reality US is in.

https://www.cbo.gov/publication/61181

You would have needed to get $4.5T in revenue in 2024 from your so called non-retail transactions to balance the books, or cut $4.5T in spending with the damage that would do, or issue more bonds to a shrinking pool of US treasury buyers.

 

[daniels27]

When US total retail sales in 2023 was $7.22T and lets says $5.6T figure you gave for 2024. How does $1.1T help the US...lol? And why 20% instead of 25%?

As explained above, I took 20% instead of 25% to account for the numerous exemptions (carrots, medicine) that will follow.

See below and inform yourself on the fiscal reality US is in.

The first National Debt Clock dates back to 1989. I do not see any way to fix the debt problem, especially with current Social Security spending which will increase over the next decades. I am not talking about how to fix it as I consider it unfixable.

I was just pointing out that the idea of abolishing personal income tax below a certain threshold is not that stupid if a VAT would be introduced. And I pointed out that among other side-effects, it would generate revenue from foreign contributors which currently benefit from the US market.

 

[Martin Everson]

The first National Debt Clock dates back to 1989. I do not see any way to fix the debt problem, especially with current Social Security spending which will increase over the next decades.

I was just pointing out that the idea of abolishing personal income tax below a certain threshold is not that stupid if a VAT would be introduced. And I pointed out that among other side-effects, it would generate revenue from foreign contributors which currently benefit from the US market.

Thank you. But I am just making clear that a VAT solution is not based on any logical or fiscal reality. Don't get sucked into Trumps alternative reality.