It is going horribly wrong at the moment, and I don't think the people in charge have any idea of what's going wrong, why they were elected, or how to fix it.
My guess as to what the problem might be is that the US has essentially become a two-class society. One class has been thriving, while the other has been struggling since the first China shock.
The US was open to trade and more neutral, while other countries pursued export-led growth industrial policies. This benefited one class, but the other is increasingly relying on basic income financed by debt.
The thing is, Trump and Musk are clearly benefiting from an overvalued dollar and a trade deficit. Why would they change a system that is working so well for them? They might end up changing it accidentally by eroding trust in US reliability (also w.r.t. US creditworthiness), but that could be catastrophic and ultimately benefit no one.
Give the same amount of money to a better team and you'd get a better (finished) game. So the allocation of capital is wrong in this case. People shouldn't pre-order stuff.
The misallocation of capital also applies to GPT-4.5/OpenAI at this point.
Yeah, I wonder what the Frontier devs could have done with $500M USD. More than $500M USD and 12+ years of development and the game is still in such a sorry state it barely qualifies as little more than a tech demo.
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.
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.
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.
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
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?
You mean the problem that sales tax is applied on inputs in the US sometimes? How do you know Ford is affected by this and hasn't structured their supply chains in a way to avoid this problem?
As mentioned in the article this is a domestic problem as well in inter-state commerce. I would also be worried that it distorts supply chains.
Tariffs are not a temporary fix for this either, since the USD will just appreciate and perhaps we'll put counter-tariffs on your tariffs. You'll need to fix this problem on your side.
I agree it’s a structural problem. A few different comments I have said this. Tariffs are one option and it’s the one Trump has chosen. Apparently it has triggered the EU. Trump can’t make Congress overhaul the tax system to include a VAT.
B2B sales from the US to the EU have no VAT.
B2B sales between European countries have no VAT.
If you sell to a consumer you pay the VAT where it is consumed.
VAT on b2b sales even within an European country are usually not that important.
You add VAT to things you sell (e.g. car repair services), you pay VAT on things you buy (e.g. car parts). If you collected more VAT on sales than you paid on purchases, you owe that to the tax department.
It's a bit of book-keeping but doesn't affect your profits directly.
They do, it's just that many choose the reverse charge mechanism, so the recipient of the services or goods is responsible for paying the VAT to his tax authority. It makes things easier, it doesn't remove VAT.
For almost all B2B cross-border transactions between two VAT registered entities, the reverse charge is mandatory, not something that you can choose to opt in to.
Are you sure? If a software company pay it's contributor dinners in Bruxelles/Milan/Lisbon, is the reverse charge mandatory too? Because it seemed like business as usual each time I went on business trip.
In practice, when you buy something with VAT reverse charged, you normally declare the VAT to be paid and immediately claim it back on the same declaration. So in the net you pay nothing, but the VAT is of course still there.
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