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>EU countries can price their goods more competitively. Assuming we talk about US consumers -- EU manufacturer is more (?) competitive by not paying VAT on the

>EU countries can price their goods more competitively. Assuming we talk about US consumers -- EU manufacturer is more (?) competitive by not paying VAT on their manufacturing, the same way US companies don't on their domestic production. Where is an advantage exactly? >A US company selling to the EU still has to factor in US corporate taxes in its pricing and does not get a VAT rebate Which VAT rebate they should get if they and their suppliers didn't pay VAT in the first place? They get back 0 USD of the 0% VAT rate in US. Sounds about right.

firesteelrain 2y ago
There is a structural disadvantage. You are correct that both the US and EU do not pay VAT when exporting. EU countries get full VAT rebate when exporting. But, the US primarily taxes businesses via corporate income tax (~21% federally, plus state taxes). EU follows a VAT system which is refunded on export. Corporations don’t get refunds on exports of their own countries prescribed tax. EU companies can structure their pricing differently since it is leaving the EU without a tax burden. EU exports tax free. On your other questions, I think you are missing the bigger picture. The part you are missing is that EU exporters get a tax refund. The rebate the US is missing is an equivalent tax relief system. VAT-based economies remove tax burdens for exporters and keep them for importers. To be clear, the EU is not “cheating”. Trump just sees the entire system resulting in a trade imbalance and the only mechanism he has right now is tariffs without overhauling the entire US tax code or some other similar relief system. There are other options that could be implemented like this and the one chosen was the tariff.
- Muromec 2y ago
  >On your other questions, I think you are missing the bigger picture. The part you are missing is that EU exporters get a tax refund. I'm not missing it, you are missing it. Yes EU companies get a tax refund and US companies don't, because there is nothing to refund when nothing was paid. >But, the US primarily taxes businesses via corporate income tax (~21% federally, plus state taxes) Believe it or not, but corporate income taxes in Europe also exist. I can see the argument that tax burden for companies in US is higher because government collects more in income tax and less in VAT tax. I'm not sure that is actually true and strongly suspect it's not, as EU is anything but a low-tax jurisdiction. If anything, that's a good argument for US to introduce VAT tax.
  - firesteelrain 2y ago
    You are correct that US exporters don’t get a VAT refund because they don’t pay VAT and corporate tax exists in both systems. But US exporters still face a tax burden that EU exporters do not. Introducing the VAT would fix this particular issue but it doesn’t fix everything. Trump isn’t wrong that the EU system is giving an edge to their exporters. In the US, VAT has been seen as regressive and hurts lower income consumers more. Changing to VAT would be politically difficult and those major changes to the US tax code have been resisted by Congress. US could offer credits on exports to act sort of like the VAT system. I am not sure what kind of impact that would have. That tax would still have to be collected elsewhere. Or corporate taxes could be reduced on exports.
    - Muromec 2y ago
      > But US exporters still face a tax burden that EU exporters do not. What exports (to where) we are talking about and what is this burden? I don't exactly follow your argument here.
      - firesteelrain 2y ago
        Any US goods exported to a VAT country (e.g Germany, France, Italy, Japan, etc) and the industries affected are automotive, manufacturing, agriculture, technology, pharmaceuticals, etc. All of them Some examples A Ford car exported from the US to Germany must be priced after paying US corporate tax (21% federal + state taxes) A BMW exported from Germany to the US gets a full VAT refund (~19% in Germany), making it tax-free on export US does not refund taxes on exports, but the EU does My final points are that EU exporters sell their products abroad with no tax burden due to VAT refunds and US exporters must price in US corporate taxes Final example Boeing (US) exports planes priced after US corporate tax (~21%) Airbus (EU) exports planes after receiving a VAT refund (~20%), making their planes cheaper in global markets This is why Trump and others see VAT as a “hidden tariff”
        tobias3 2y ago
        Okay so the problem is actually collecting corporate taxes. A solution would be perhaps an international treaty for a global minimum corporate tax rate? Trump left that treaty recently, oh well. Of course the exported car is not "tax-free". There is a 19.325% corporate tax rate + municipal tax on corporations in Germany. This is already pretty close to the one you mentioned. Then labour is more heavily taxed in Germany. And you have a sales tax in the US as well, you haven't taken that into account. Maybe use Ireland as an example?

firesteelrain 2y ago

There is a structural disadvantage. You are correct that both the US and EU do not pay VAT when exporting. EU countries get full VAT rebate when exporting. But, the US primarily taxes businesses via corporate income tax (~21% federally, plus state taxes). EU follows a VAT system which is refunded on export. Corporations don’t get refunds on exports of their own countries prescribed tax. EU companies can structure their pricing differently since it is leaving the EU without a tax burden. EU exports tax free. On your other questions, I think you are missing the bigger picture. The part you are missing is that EU exporters get a tax refund. The rebate the US is missing is an equivalent tax relief system. VAT-based economies remove tax burdens for exporters and keep them for importers. To be clear, the EU is not “cheating”. Trump just sees the entire system resulting in a trade imbalance and the only mechanism he has right now is tariffs without overhauling the entire US tax code or some other similar relief system. There are other options that could be implemented like this and the one chosen was the tariff.

Muromec 2y ago
>On your other questions, I think you are missing the bigger picture. The part you are missing is that EU exporters get a tax refund. I'm not missing it, you are missing it. Yes EU companies get a tax refund and US companies don't, because there is nothing to refund when nothing was paid. >But, the US primarily taxes businesses via corporate income tax (~21% federally, plus state taxes) Believe it or not, but corporate income taxes in Europe also exist. I can see the argument that tax burden for companies in US is higher because government collects more in income tax and less in VAT tax. I'm not sure that is actually true and strongly suspect it's not, as EU is anything but a low-tax jurisdiction. If anything, that's a good argument for US to introduce VAT tax.
- firesteelrain 2y ago
  You are correct that US exporters don’t get a VAT refund because they don’t pay VAT and corporate tax exists in both systems. But US exporters still face a tax burden that EU exporters do not. Introducing the VAT would fix this particular issue but it doesn’t fix everything. Trump isn’t wrong that the EU system is giving an edge to their exporters. In the US, VAT has been seen as regressive and hurts lower income consumers more. Changing to VAT would be politically difficult and those major changes to the US tax code have been resisted by Congress. US could offer credits on exports to act sort of like the VAT system. I am not sure what kind of impact that would have. That tax would still have to be collected elsewhere. Or corporate taxes could be reduced on exports.
  - Muromec 2y ago
    > But US exporters still face a tax burden that EU exporters do not. What exports (to where) we are talking about and what is this burden? I don't exactly follow your argument here.
    - firesteelrain 2y ago
      Any US goods exported to a VAT country (e.g Germany, France, Italy, Japan, etc) and the industries affected are automotive, manufacturing, agriculture, technology, pharmaceuticals, etc. All of them Some examples A Ford car exported from the US to Germany must be priced after paying US corporate tax (21% federal + state taxes) A BMW exported from Germany to the US gets a full VAT refund (~19% in Germany), making it tax-free on export US does not refund taxes on exports, but the EU does My final points are that EU exporters sell their products abroad with no tax burden due to VAT refunds and US exporters must price in US corporate taxes Final example Boeing (US) exports planes priced after US corporate tax (~21%) Airbus (EU) exports planes after receiving a VAT refund (~20%), making their planes cheaper in global markets This is why Trump and others see VAT as a “hidden tariff”
      - tobias3 2y ago
        Okay so the problem is actually collecting corporate taxes. A solution would be perhaps an international treaty for a global minimum corporate tax rate? Trump left that treaty recently, oh well. Of course the exported car is not "tax-free". There is a 19.325% corporate tax rate + municipal tax on corporations in Germany. This is already pretty close to the one you mentioned. Then labour is more heavily taxed in Germany. And you have a sales tax in the US as well, you haven't taken that into account. Maybe use Ireland as an example?