VAT Tax, the UK, and what it means to the US

There is talk of the VAT tax in the US. From the London Telegraph today they state:

One of the UK's best-known retailers, with sales of well over £10bn, is telling its overseas suppliers to start adjusting its price tags on clothing and other products to assume a VAT level of 20pc. The goods in question will hit the shops in February of next year.

Meanwhile the impact of a VAT increase on UK households is revealed in new research by The Sunday Telegraph showing that day-to-day living costs in the average home would rise by at least £216 a year if the rate was raised from 17.5pc to 20pc.

That means about $350 increase or for the US an increase of $2800 for the average family. VAT is a consumption tax and hits the poor quite hard. The rich can always find ways around it as they do in the UK.

Specifically the Telegraph states:

The potential impact of a VAT rise comes as experts have warned that financial plans by the coalition Government could leave some ordinary families £3,000 a year worse off.

Stephen Herring, tax partner at accountants BDO, said that a couple with two children, where one parent earned £50,000 a year and made a modest gain of £6,000 on the sale of shares or other assets, could be more than £2,000 worse off a year under expected new measures including changes to the capital gains tax (CGT) regime.

The potential impact of a VAT rise comes as experts have warned that financial plans by the coalition Government could leave some ordinary families £3,000 a year worse off.

Stephen Herring, tax partner at accountants BDO, said that a couple with two children, where one parent earned £50,000 a year and made a modest gain of £6,000 on the sale of shares or other assets, could be more than £2,000 worse off a year under expected new measures including changes to the capital gains tax (CGT) regime.

Thus it can be much greater than my simple calculation above. For example say you make $100,000 per year as a family, not bad but you live in New York. You pay $2000 Federal Tax, $12000 NY State and City tax, and you buy say $20,000 in goods and services. You pay 9% tax to the city and state and 20% VAT. That means you pay the $20,000 plus now it is really $24,000 but the 9% is now on the $24,000, not the $20,000!

What do you think will happen? Bangkok! Perhaps....