It is a tax that is taken from the difference of buying price and the selling price. You can deduct the VAT you pay when you purchase anything that is used in business from the VAT you collect when you sell but can not deduct things like payroll since the employers can not write you an invoice for the paycheck they receive.

Also one of the worst aspects of this thing is you pay the VAT up front when you buy raw materials and if you can not sell the product quickly, or keep stock you finance the whole VAT until (or ever) you sell your products and get the VAT you paid back.

I live in a country where VAT exists (ranging from 1% up to 23%!!!) and since I am both a consumer and an entrepreneur I know how the thing works from all angles.

I also know a bit about the general tax situation in the US and I believe a federal VAT is on the way for the US.

The only practical problem would be the tradition of announcing of the prices without the sales tax. Usually when VAT is used, the price is announced including tax so that the consumer thinks the tax is not something he pays but a cost inherent in the product.

And in a way it is. Everybody that is doing business and writing up invoices works as a tax man and collects VAT and reports to the treasury. Not everybody is personally responsible for the VAT so the popular dissent would be only against the apparent price increases. It wouldn’t be anything like income taxes where almost everyone is personally liable.

If VAT comes to the US, it would come on top of the local sales tax but I don’t know how the price would be announced.

Also if VAT comes it will definitely start with a very low percentage point and then eventually rise.

technical analysts would probably point out the massive head-and-shoulders top potentially forming in the long bond. a break of the neckline around 112.50 should solve cowen’s conundrum.

Call it folk economics, or tribal economics if you prefer, but many voters do vote with their hearts and their instincts and not with their heads, and to that extent people can be considered irrational.

There will be no adjustment until there has to be. Greece is a great example of that. Would you call the protesters demanding ever-more benefits rational? Yes, but only in a limited sense.

Cowen and Caplan are always quick to label voters irrational when voters refuse to do what Cowen and Caplan think they should do. But are voters irrational, or victimes of mainstream economics? I say the latter. Voters are rational in that they don’t specialize in economic theory. Voters practice comparative advantage and leave the economics to the experts. And they should. But the majority of those experts are socialists, as are the media which explain expert theory to the voters.

As for solutions to the US unsustainable path, the founders set up the government so that not much will happen until a large number of people become very concerned about it and can agree on a solution. That means that we will lurch from one crisis to another because people can come to a consensus only in a crisis.

Why don’t long-term interest rates reflect concern for the unsustainable path? Because concern about the future is only one of many factors that determine market interest rates. Other factors include monetary policy (a big factor) and the relative attractiveness of other investment opportunities. What would people invest in today besides US debt?

BTW, the correct translation of the Biblical passage on money is that the love of money, not money itself, is the root of all kinds of evil; not all evil.