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Any US goods exported to a VAT country (e.g Germany, France, Italy, Japan, etc) and the industries affected are automotive, manufacturing, agriculture, technolo

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
  The argument is not that BMW doesn't pay corporate tax. The issue is that BMW gets a VAT refund on exports, while Ford does not get equivalent tax relief. Remember that the sales tax applies only at the point of sale, while VAT is applied at every stage of production but refunded for exports. This is what I have been saying all along. Even though BMW still pays German corporate tax, the tax on exports is removed via VAT refunds. The real solution is that the US needs export tax relief to offset corporate tax on exported goods. Trump’s tariffs do not fix this - it is just a temporary fix to the trade imbalance. A global corporate tax agreement does not solve this issue either as that is not the root of the issue. Ireland is a great example because it is corporate friendly and has lower tax rates plus a VAT system. Dell (Ireland) can export tax free while Apple cannot. So Apple has to absorb the full corporate tax burden. Granted both are PC makers but sort of a different class or consumer target. But you get what I am saying.
  - alexanderchr 2y ago
    You are misunderstanding. Both VAT and sales tax are only paid by the end consumer. The main difference is that VAT is progressively collected at each production step whereas sales tax is only collected during the final transaction to the end consumer. If a good is exported, no VAT nor sales tax is due in the export country. But because some VAT has already been collected in the earlier production stages, that VAT needs to be returned to the exporter. No sales tax will have been collected at the time a good is exported, hence there is none to return. In both cases, the end result is that no VAT or sales tax is paid in the export country. Hence the situation is completely the same. Corporate taxes are orthogonal to this discussion. Both US and EU have them and they apply to corporate profits, independently on if they derive from exports or domestic sales. So no reason to complicate the discussion by bringing them up.
    - firesteelrain 2y ago
      I feel like I keep repeating myself You got some things right VAT countries can export tax-free because VAT is refunded Even though VAT itself is not a tariff, its refund system effectively subsidizes exports by removing domestic tax costs You are missing the trade impact of VAT refunds though It is a fact that US goods tend to be more expensive in VAT countries like the EU because they face an extra tax burden upon import that EU goods do not face when exported to the US. This extra burden is the VAT that the consumer now has to pay. Whereas when it’s exported to the US, the US consumer does not have to pay the VAT so the trade playing field is not equal. That’s why Trump sees VAT as a “hidden tariff.” Even though VAT is not a tariff, it functions like one by favoring VAT-based exports
      - alexanderchr 2y ago
        Yes, you are indeed repeating yourself. Unfortunately, that does not make what you are saying more right. VAT countries export VAT free. Sales tax countries export sales tax free. When you import something to a VAT country, the end consumer has to pay VAT. When you import something to a sales tax country, the end consumer has to pay sales tax. Maybe we can make some progress if you could explain how these situations are not completely analogous, and what precisely is it that gives VAT countries an unfair advantage?
Muromec 2y ago
>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 Does US tax exports on turnover instead of income now? Does BMW not pay corporate income taxes? Are you being dense on purpose?
- firesteelrain 2y ago
  No, the US does not tax exports on turnover. US corporate tax is on net income (profit), not on revenue. Ford's export price still carries the cost of US corporate tax You assume the argument is that BMW doesn’t pay corporate tax but that is not the point. You assume the US is taxing exports unfairly. It isn’t, but it also doesn’t provide tax relief like VAT systems do. You are ignoring the fact that VAT refunds lower the export price for BMW, but Ford gets no equivalent tax break. Even though both BMW and Ford pay corporate taxes, BMW’s exports are tax-free because VAT is refunded. The real issue is structural tax asymmetry. The EU removes tax burdens from exports (via VAT refunds) and US does not because it has no such system. This makes US exports less competitive in VAT countries like Germany. The entire system makes for a trade imbalance for US exporters to the EU but there is no fair equivalence in EU hence Trump’s actions and remarks.
  - Muromec 2y ago
    >The EU removes tax burdens from exports (via VAT refunds) and US does not because it has no such system. US didn't collect the tax in the first place, so there is no burden to relieve the company from. Refunding tax on exports makes it symmetric, otherwise EU would tax exports that US doesn't. I don't get why you bring up corporate taxes here at all, as they are present in both situation and are not refunded. I doesn't sound like you are arguing in a good faith to me. >This makes US exports less competitive in VAT countries like Germany. No it doesn't. Both imported and locally produced goods will have the same tax applied to them. Both local manufacturers and US companies have to price in their corporate taxes. Nobody pays the VAT except the end consumer in the end.
    - 2y ago

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
The argument is not that BMW doesn't pay corporate tax. The issue is that BMW gets a VAT refund on exports, while Ford does not get equivalent tax relief. Remember that the sales tax applies only at the point of sale, while VAT is applied at every stage of production but refunded for exports. This is what I have been saying all along. Even though BMW still pays German corporate tax, the tax on exports is removed via VAT refunds. The real solution is that the US needs export tax relief to offset corporate tax on exported goods. Trump’s tariffs do not fix this - it is just a temporary fix to the trade imbalance. A global corporate tax agreement does not solve this issue either as that is not the root of the issue. Ireland is a great example because it is corporate friendly and has lower tax rates plus a VAT system. Dell (Ireland) can export tax free while Apple cannot. So Apple has to absorb the full corporate tax burden. Granted both are PC makers but sort of a different class or consumer target. But you get what I am saying.
- alexanderchr 2y ago
  You are misunderstanding. Both VAT and sales tax are only paid by the end consumer. The main difference is that VAT is progressively collected at each production step whereas sales tax is only collected during the final transaction to the end consumer. If a good is exported, no VAT nor sales tax is due in the export country. But because some VAT has already been collected in the earlier production stages, that VAT needs to be returned to the exporter. No sales tax will have been collected at the time a good is exported, hence there is none to return. In both cases, the end result is that no VAT or sales tax is paid in the export country. Hence the situation is completely the same. Corporate taxes are orthogonal to this discussion. Both US and EU have them and they apply to corporate profits, independently on if they derive from exports or domestic sales. So no reason to complicate the discussion by bringing them up.
  - firesteelrain 2y ago
    I feel like I keep repeating myself You got some things right VAT countries can export tax-free because VAT is refunded Even though VAT itself is not a tariff, its refund system effectively subsidizes exports by removing domestic tax costs You are missing the trade impact of VAT refunds though It is a fact that US goods tend to be more expensive in VAT countries like the EU because they face an extra tax burden upon import that EU goods do not face when exported to the US. This extra burden is the VAT that the consumer now has to pay. Whereas when it’s exported to the US, the US consumer does not have to pay the VAT so the trade playing field is not equal. That’s why Trump sees VAT as a “hidden tariff.” Even though VAT is not a tariff, it functions like one by favoring VAT-based exports
    - alexanderchr 2y ago
      Yes, you are indeed repeating yourself. Unfortunately, that does not make what you are saying more right. VAT countries export VAT free. Sales tax countries export sales tax free. When you import something to a VAT country, the end consumer has to pay VAT. When you import something to a sales tax country, the end consumer has to pay sales tax. Maybe we can make some progress if you could explain how these situations are not completely analogous, and what precisely is it that gives VAT countries an unfair advantage?

Muromec 2y ago

>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 Does US tax exports on turnover instead of income now? Does BMW not pay corporate income taxes? Are you being dense on purpose?

firesteelrain 2y ago
No, the US does not tax exports on turnover. US corporate tax is on net income (profit), not on revenue. Ford's export price still carries the cost of US corporate tax You assume the argument is that BMW doesn’t pay corporate tax but that is not the point. You assume the US is taxing exports unfairly. It isn’t, but it also doesn’t provide tax relief like VAT systems do. You are ignoring the fact that VAT refunds lower the export price for BMW, but Ford gets no equivalent tax break. Even though both BMW and Ford pay corporate taxes, BMW’s exports are tax-free because VAT is refunded. The real issue is structural tax asymmetry. The EU removes tax burdens from exports (via VAT refunds) and US does not because it has no such system. This makes US exports less competitive in VAT countries like Germany. The entire system makes for a trade imbalance for US exporters to the EU but there is no fair equivalence in EU hence Trump’s actions and remarks.
- Muromec 2y ago
  >The EU removes tax burdens from exports (via VAT refunds) and US does not because it has no such system. US didn't collect the tax in the first place, so there is no burden to relieve the company from. Refunding tax on exports makes it symmetric, otherwise EU would tax exports that US doesn't. I don't get why you bring up corporate taxes here at all, as they are present in both situation and are not refunded. I doesn't sound like you are arguing in a good faith to me. >This makes US exports less competitive in VAT countries like Germany. No it doesn't. Both imported and locally produced goods will have the same tax applied to them. Both local manufacturers and US companies have to price in their corporate taxes. Nobody pays the VAT except the end consumer in the end.
  - 2y ago