Value-Added Taxation in Canada: GST, HST, and QST (5th edition), Ryan global tax services, publ. by Wolters Kluwer, 12/2015

Value-Added Taxation in Canada is an in-depth analysis of the Goods and Services Tax (GST), its harmonized counterpart (HST) currently applicable in Nova Scotia, New Brunswick, Newfoundland and Labrador, Ontario, and Prince Edward Island, and the Quebec Sales Tax (QST). The book combines discussion on the theoretical and practical questions posed by Canada’s value-added taxes, with an emphasis on the implications for private and public sector taxpayers. The authors have integrated commentary on the impact of all three taxes (GST, HST, and QST) in each topical area. These taxes are referenced extensively throughout the book, providing insight into the legislation and administrative policy at both the federal and provincial level.

This fifth edition of this essential reference has been updated to reflect applicable legislation, regulations, government policies, and proposed amendments as of September 2015.

Sullivan, Martin, Ed., “The VAT Reader, What a Federal Consumption Tax Would Mean for America,” Tax Analysts, Falls Church, VA, 2011

“Among the unpleasant possibilities, a VAT must be on the short list of options. For starters, a VAT is a consumption tax. Economists of all stripes agree that if there must be a new tax, a broad-based consumption tax will do the least economic damage. Further, all the world’s other leading economies have VAT regimes.
The amount of revenue a VAT would bring in depends critically on the details of its design, but a reasonable estimate is that it would take a VAT with a rate in the neighborhood of 10 percent to stabilize our country’s debt-to-GDP ratio. This ballpark figure is only a point of reference not a prediction or a recommendation.
It’s unlikely a VAT would ever become law in America without major spending cuts also contributing to deficit reduction. Concurrent spending cuts would lower the VAT rate needed to restore fiscal sustainability. Conversely, there is a good chance that any new VAT would fund a reduction of other taxes. That is there could be a tax reform and deficit reduction element to the adoption of a VAT. That would raise the VAT rate necessary to achieve fiscal sustainability,” p. 11
– Martin A. Sullivan, Editor

OECD (2010), “Tax Policy Reform and Economic Growth, OECD Publishing, 11/03/10

This OECD report underscores the point that VAT’s are least negative for economic growth, and that corporate income taxes are “most harmful” in stimulating investment and productivity.

As to the fears that VAT’s always grow, in the ten years from 2000 to 2010, 21 of 30 OECD countries with VAT’s held or reduced their VAT’s. Those 9 of 30 countries which increased their VAT’s raised the tax an average 1.6% absolute on an average base of 18.4%.

“Many countries have been running large budget deficits as a result of the financial and economic crisis with strongly increased debt levels as a consequence. Reducing debt levels, also in light of ageing societies and the resulting higher pension and health costs, has been – or very likely will be – put high on the political agendas in many countries. Debt-to-GDP levels can be reduced either by reducing spending or increasing taxes but also by increasing the GDP growth rate. Such considerations point to designing the tax system in such a way that it is the least negative for economic growth, p. 9 …

…In open economies the design of a national tax system will need to consider the design of tax systems in other countries, since countries are increasingly using their tax systems to improve their ability to compete in global markets, p. 19 …

…Corporate income taxes can influence the choice of location of factories and offices. The tax system is only one factor among many in improving countries’ competitiveness otherwise there would have been a large outlfow of capital and activities from high to low tax countries, but there is evidence that location decisions are becoming more sensitve to tax, p. 20 …

…Corporate income taxes are the most harmful for growth as they discourage the activities or firms that are most important for growth: investment in capital and productivity improvements. In addition, most corporate tax systems have a large number of provisions that create tax advantages for specific activities, typically drawing resources away from the sectors in which they can make the greatest contribution to growth, p. 22″

http://dx.doi.org/10.1787/9789264091085-en

OECD Economic Surveys: United States 2010, OECD Publishing, 09/10

In recommending a VAT for the U.S., the OECD report on the U.S. economy emphasizes that the long-term fiscal trends are unsustainable.  The OECD concludes that, while introduction of a VAT will be politically difficult, this consumption tax alternative will be more politically palatable and more economically efficient than an increase in income taxes.

Brys, Bert, “Making fundamental tax reform happen,” in “Making Reform Happen, Lessons from OECD Countries,” OECD, p. 101-128, 06/15/10

“A shift from direct towards more indirect taxes – a tax reform that is considered to be growth-promoting (Johansson et al., 2008) – through an increase in the statutory VAT rate might increase tax evasion and cross-border shopping and might stimulate the informal sector.  It might also result in pressures for wage increases, leading to inflation and a corresponding loss of competitiveness, and leading to an increase in the unemployment rate.  If, however, the VAT rate increase is offset by a reduction in the direct taxation of labour, then the overall effect on competitiveness could be positive: this is because domestic producers will reap the full benefit of the cut in direct taxes, but the increase in VAT will be “shared” with foreign competitors, because experts are zero-rated for VAT purposes and imports are taxed at the same rate as domestically produced goods.  A shift from direct to indirect taxes might therefore be achieved by broadening the VAT base as well as (or even instead of) increasing the VAT rate.  As a general rule, there is much to be said for trying to keep most bases broad and most rates low.” p. 104
“The mere announcement of a tax reform can have an impact on agents’ behavior even before it is implemented.  The impact on short-run growth might be negative if, for instance, agents postponed investment decisions until the new tax rules were in force.  Problems may also arise if, on the contrary, agents rush to make the most of a tax distortion before it is removed.  The opposite result holds as well: the reduction or abolition of a growth-friendly provision could have positive short-term growth effects.  For example, the announcement of the reduction of an investment tax credit in the near future could bring forward investment and thus stimulate growth in the short run.  Similarly, the announcement of a future increase in the VAT rate, for instance, will bring forward purchases of durable consumption goods.  Whether or not this is desired will, of course, depend on the structural position of the economy at the time.  Announcement effects can thus create obstacles to the implementation of tax reforms or give rise to unanticipated distortions, especially if government cannot implement the reform immediately.” p. 107
“The evaluation of tax-policy reform implies addressing the impact of the tax reform on income distribution.  However, policy makers should bear in mind – and communicate to the electorate – that distributional goals should not be assessed on a tax-by-tax basis.  Alt, Preston and Sibieta (2008) argue that in order to pursue sensible tax policy, it is essential to see the tax system as a system rather than to consider its different elements in isolation.  Disconnected tax debates may be particularly counter-productive for the implementation of fundamental tax reform.  Broadening the VAT base, for example, might be difficult if the discussion of VAT-reduced rates on particular goods takes place in isolation.  The framing of the debate on recurrent taxes on immovable property in isolation will likewise hinder its adoption.  Alt, Preston and Sibieta (2008) argue that such framing could result from a lack of public understanding of the actual impact of different taxes and of the interconnectedness of the tax and benefit systems.   Discussing tax-policy reforms in isolation could reinforce this lack of understanding by allowing the tax-reform discussion to focus on individual taxes only.  Lobby groups might have an incentive to frame particular tax-policy reforms in isolation, but this approach is unlikely to be in the interest of the general public,” p. 113.

Bartlett, Bruce, “The New American Economy, The Failure of Reaganomics and a New Way Forward,” Palgrave Macmillan, New York, 2009

“Of course, no one is going to raise taxes as long as the economy is in the doldrums  But the debate over fundamental tax reform will take years, and many more to actiually begin collecting revenue from a VAT.  The sooner the process starts, the sooner we will be ready for the impending fiscal storm.,” p. 187

Walker, David M., “Comeback America, Turning the Country Around and Restoring Fiscal Responsibility, Random House, New York, 2009

“In my ideal world, we would get rid of our income tax system with all of its complications and rely on consumption taxes for a significant share of federal revenues.  The VAT is easy to administer, deducted automatically in every transaction….Policy makers can favor certain industries and taxpayers simply by adjusting the relevant rates and credits.  (No more squadrons of lawyers finding loopholes!)  Finally, a consumption tax encourages savings over conspicuous consumption:  You can dodge taxes only by by being more careful about how you spend your money.  It is also a way to tax very wealthy people without having to distinguish between their accumulated wealth and their current income.  Their tax shelters would no longer save them from taxes.
Okay, time to stop dreaming.  Some version of Form 1040 and April 15 will probably continue to be aspects of the American nightmare for many years to come.  But let’s at least include a national consumption tax as part of an efficient, fair new system to generate the revenues we need to close the deficit, reduce our debt, and address other key national priorities.  We need more money to pay our bills, and adding a new tax, after we enact tough new statutory budget controls and spending limits, may make sense as an alternative to dramatically raising our income and payroll tax rates and putting more pressure on an already creaky foundation of our tax policy,” p.118-119

Graetz, Michael J., “100 Million Unnecessary Returns, A Simple, Fair, and Competitive Tax Plan for the United States,” Yale University Press, 2008

(VATinfo Note: Graetz calls for a 10-14% broad-based VAT exempting all businesses with less than $100,000 a year from collecting the tax; income tax credits for those at the bottom of the income scale ; eliminating the income tax for families earning less than $100,000 a year; a low tax rate on those above $100,000; reducing the corporate tax rate to 15-20%.)
“It is puzzling that U.S. economists and policymakers have struggled to fashion novel consumption tax alternatives like the flat tax or the Growth and Investment Tax, when there is a well-functioning consumption tax — the value-added tax — being used throughout the OECD and in nearly 150 countries worldwide.  Given the interconnectedness of the world economy, tax reform does not seem the right occasion to insist on American exceptionalism,” p. 82
“…(A VAT) would permit a major restructuring of our tax system into one that is vastly simpler and far more conducive to savings, investment, and economic growth.  And this can be accomplished in a way that is fair: a way that neither substantially increases the tax burden of low and moderate income taxpayers nor shifts taxes away from those at the top of the income scale,” p. 83

Schenk, Alan and Oliver Oldman, “Value Added Tax, A Comparative Approach,” Cambridge University Press, New York, NY, 2007

“According to the WTO rules, border tax adjustments for indirect taxes do not constitute subsidies of exports or disadvantages to imports,” p. 6.  

(VATinfo Note: The U.S. by not having a VAT, since all its trading partners do have one, is at a competitive disadvantage by not subtracting the cost of government from exports and not adding the de facto tariff of a VAT to imports.)

Stern, Andy, “A Country That Works, Getting America Back on Track, Free Press, New York, NY, 2006

“As a nation, we face massive shared challenges.  It is incumbent on all of us to do our part to tackle these problems, such a fixing our failing schools, bringing down the rising numbers of uninsured, and connecting everyone to the Internet highway.  In addition to the revenues that we could raise by more progressively and appropriately taxing corporations and individuals, we as a society can choose to commit our resources to solving these problems more directly.
If we implemented a Value Added Tax (or some other form of consumption tax) and dedicated the revenue raised to solving just one of these problems, we could forever change the landscape of U.S. social policy,” p.179