What's the Difference Between a VAT and a National Sales Tax?

By Rich Kozlovich

Originally years ago I held the view there wasn't much difference between a Value Added Tax (VAT) and a National Sales Tax (NST).  That was based on the fact I didn't really look up that difference and when I did - I realized how foolish that view was.  I think that lack of understanding is a common problem, so I think it wise to show there is a difference - a big difference - and as in any effort to reform a tax collection system - there's a big caveat I will address at the end.

A National Sales Tax is a tax imposed at the final sale to the consumer of the product in it's final form, by adding a percentage to the taxable price of the sale.  As an example, the sales tax in Lake Country Ohio is 7%.  If I buy a $100.00 item the final price is $107.00.   Easy to calculate, easy to understand and that's the end of it.

However, a VAT is imposed on every stage of production.  Here's one discription of that process:

"A refiner that takes metal ore and produces metal ingots adds value and pays a tax.  A manufacturer who then takes those ingots and turns them into nuts and bolts adds more value and pays a tax on that added value.  Another manufacturer who incorporates the nuts and bolts into products adds yet more value and pays a tax there.  Notice that the design of the VAT system avoids double taxing, since the tax is only on the value added by that stage in the production process.  At the end, the product sold will be taxed a uniform percentage, but the tax will be collected at each intermediate stage of the process."

The double taxing comment is misleading in my opinion, and here's why.  A VAT tax is indirectly applied all along the way, not at the end of the sale directly to the consumer - a sort of hidden tax.  And truthfully - I'm not sure if it won't be applied to the consumer by some economic machination once it became law. 

But here's the big problem in my opinion - how do you calculate the "value added" at each stage?  Clearly that must involve some tricky calculations, and the more complicated anything becomes the less likely there will be complience, and I sure the more corrupt it becomes, and it's all hidden to the public.  

When a sales tax is applied at the time of the sale, at a calculation rate that's easy to understand and easy for someone to calculate at the time - all in the open - that's more likely to be fair and above board.  But first we must come to the "big caveat". 

Repeal the 16th Amendment "first"!  First!

That's the income tax amendment.  As hard as this may to believe - if both exist the Congress will rape the American people with out of control spending and taxation far beyond anything we're seeing today. 

The biggest advantage to repealing the 16th Amendment and passing a National Sales Tax is there will be no need for the Internal Revenue Service (IRS).  They're out of control, and corrupt to the point a case of treason could be made against many of them.  Money will still have to be collected and accounted for but any collection agency could do that.  There will no need for an IRS as we know it.

That alone will amount to a massive savings to the American tax paying public since I'm told the amount of money collected from payroll taxes is the amount needed to fund the IRS.