VAT: A Levy That Consumers Rarely See but Must Still Pay
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Some form of a valued-added tax is now in use in 50 countries around the world, including most of America’s major trading partners.
A VAT is often referred to as a type of sales tax. But unlike the retail sales tax that many states impose, a VAT is typically levied at each stage of production and marketing.
The government seeks to tax a percentage of the extra value added as a product proceeds to the store shelves. For example, the sale of grain by the farmer would be taxed, the flour made from the grain would be taxed and so would the bread produced from the flour.
By imposing the tax at each stage of the production process, it becomes buried in the price of the product and is far less visible to the consumer, who ultimately pays the tax.
Many countries, however, exclude food, housing and medical care from a VAT to lessen the regressive nature of the tax.
The Congressional Budget Office estimates that a 5% VAT excluding these items would raise $217 billion over four years.
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