U.S. to Implement a VAT Taxing Scheme?
is increasingly considered as a
viable alternative.
A national consumption tax or VAT is a tax on goods and services that is collected at every step of the production process, from importing and processing of raw materials, to the end consumer. In use in more than 130 countries worldwide, VAT is one of the world’s most popular taxes and, among industrialized nations, ranges from 5% in Japan to 25% in Hungary.
While introducing such a tax would require a reform of the entire federal tax code, economists attribute to VAT several significant advantages. Compared to a regular sales tax, VAT has a broader base as it is paid by almost everybody. VAT’s broad reach is the reason why the International Monetary Fund (IMF) frequently recommends it to countries that need to raise money quickly.
Furthermore, VAT is hard to escape: if at some point within the production chain a business evades paying the tax, the government will collect it from business at other stages of production. In a VAT system, since businesses usually get credit for taxes already paid by their suppliers, companies will pressure the non-paying business to pay their portion of VAT. In this regard, collecting VAT would be self-policing process.
Earlier this year, the Washington Post reported that the federal budget deficit is projected to reach $1.3 trillion in 2010, which is the highest so far with the exception of this year’s $1.8 trillion. On every dollar it spends, the Treasury Department borrows 46 cents of every dollar, primarily from China and other foreign creditors who are starting to get worried about the security of their investments. The national healthcare reform would only add to the budget deficit.
Establishing VAT in the U.S. may be unlikely in the immediate future because of the still-tentative economic recovery and unwillingness of politicians to impose a new tax that would directly affect the revenues of their constituents; however, economists estimate that federal tax revenues need to rise by 20 to 30% in the next few years to cover its expenditures, and VAT may be selected as the least painful alternative.
Laptop Searches Criticized at Senate Hearing
In April, the U.S. Court of Appeals for the Ninth Circuit ruled that U.S. Customs and Border Protection (CBP) could conduct searches of electronic devices such as laptops without reasonable suspicion. Specifically, the court ruled that border control agents who found child porn on a traveler's laptop didn't violate the man's right to be free from unreasonable searches. Judge Diarmuid O'Scannlain wrote, "We are satisfied that reasonable suspicion is not needed for customs officials to search a laptop or other personal electronic storage devices at the border." In 2005, the U.S. Court of Appeals for the Fourth Circuit upheld computer searches by border guard when a man drove from Canada to the U.S. with child porn on his computer.
As reported by the New York Times:
“If you asked most Americans whether the government has the right to look through their luggage for contraband when they are returning from an overseas trip, they would tell you ‘yes, the government has that right,’ ” Senator Russ Feingold, Democrat of Wisconsin, said Wednesday at the hearing of a Senate Judiciary subcommittee.
“But,” Mr. Feingold continued, “if you asked them whether the government has a right to open their laptops, read their documents and e-mails, look at their photographs and examine the Web sites they have visited, all without any suspicion of wrongdoing, I think those same Americans would say that the government absolutely has no right to do that.”
New York Times Reports on Reexport from UAE to Iran
The article states that last year, U.S. military investigators discovered American-made computer circuits in bomb detonators used in Iraq against U.S. forces. By reading the serial number of the chip and studying shipping records, investigators determined that the chip had been manufactured by AMD in Sunnyvale, CA and sold to Mayrow General Trading in Dubai. A spokesperson for AMD told the New York Times that the company had cooperated with the investigation and added that its customers are bound by agreements not to re-export its products to Iran. The U.S. did not have jurisdiction over Mayrow, a foreign company, but were angered that UAE counterparts had not immediately moved to close Mayrow.
The report states that the discovery of the computer circuits in the bomb detonators set off a clash when the Bush Administration cited the diversion of computer circuits to Iran and then to Iraq, as proof that the UAE were failing to prevent American technology from falling into the wrong hands. American officials stated that other controlled items have moved through Dubai, one of the emirates, to Iran, Syria, and Pakistan.
The article states:
The diplomatic face-off, which drew little public attention, prompted the United States to threaten tough new controls on exports to the United Arab Emirates, an ally. The nation had invested billions to become a global trading hub and had begun a campaign to burnish its image in the United States after the uproar in 2006 over a proposal to allow a Dubai company manage some American port terminals.The administration backed down only after the emirates promised to pass their own export control law. But it is unclear that much has changed nearly a year after the confrontation.
Despite the new UAE export control laws, Iranian traders have found little evidence that the law has been broadly enforced. The article states that the U.S. has been concerned about the diversion of exports to the UAE since 2002 when the Commerce Department sent Mary O'Brien, an inspector, to the UAE for end use checks. From her spot checks of factories, freight forwarders, and other companies that had ordered U.S. export controlled products, Commerce officials stated that it was clear that the products were being diverted on a grander scale than imagined.
In Ms. O'Brien's 4 years of end user checks, nearly 40% were unfavorable in that the regulated items were found to be missing or the recipient would not cooperate. These end user checks helped jump start many criminal investigations into the diversion of controlled U.S. commodities diverted to Iran. As of last year, 58 inquiries (about half of the total) involved the United Arab Emirates.An entity said to be a woodworking shop, for example, had ordered a sophisticated American machine for making metal parts. The device, Ms. O’Brien knew, could also shape components for a missile system. The supposed factory contained almost no sawdust, and the few employees could not explain how they intended to use the machine.“This is not right,” Ms. O’Brien said she had said to herself, convinced that she had turned up her first “briefcase business”— open for inspection, but closed for good as soon as she walked out.
The NYT reports that the Commerce Department had proposed new export controls for "governments unwilling or unable to cooperate with the U.S. in its interdiction efforts," which would require special reviews before certain dual-use items could be exported to such nations. Last year, nearly $12 billion worth of American goods were exported to the UAE. Diplomats and lobbyists from the UAE appealed to the State Department and White House and promised the Commerce Department that the UAE would adopt its own export control law, staving off the new reforms. The export control law was adopted in the UAE last August. In fact, the UAE claims to have shut down 12 companies late last year suspected of illegal exports or money laundering and recently arrested a Jordanian businessman who tried to import a metal used in nuclear reactors with the intention of selling to other countries.
Commerce and State officials say that they are encouraged by the steps taken by the UAE, but said that an export licensing system must still be introduced and other enforcement steps taken. Mario Mancuso, the Commerce Under Secretary for export administration stated, "The UAE has made progress, but more needs to be done."
House Committee Requests Comments on Miscellaneous Tariff and Duty Suspension Bills
The Committee on Ways and Means has jurisdiction over legislation to amend the U.S. tariff schedule and to make corrections to trade legislation. On November 1, 2007, Chairman Levin and Ranking Member Herger requested that all Members who planned to introduce tariff legislation or miscellaneous corrections to the trade laws do so by December 14, 2007. Chairman Levin and Ranking Member Herger are now requesting public comment on those bills listed here and are requesting budget scoring estimates from the Congressional Budget Office. The deadline for the public to submit written comments to the Committee is Thursday, April 10, 2008.
After the comment period, the Subcommittee will review all comments and determine which bills should be included in a miscellaneous tariff bill (MTB) package. The Subcommittee will consider the extent to which the bills create a revenue loss, operate retroactively, attract controversy, or are not administrable. The Subcommittee states that,
Instructions for submitting written comments can be found here.The primary purpose of the bill is to help U.S. manufacturers compete at home and abroad by temporarily suspending or reducing duties on intermediate products or materials that are not made domestically, or where there is no domestic opposition. Such reductions or suspensions reduce the costs for U.S. businesses and ultimately increase the competitiveness of their products. The process will look carefully for domestic production and opposition to proposed modifications to the U.S. Harmonized Tariff Schedule.
Political Backstory Behind Recent Presidential Export Control Directives
Commerce Announces Signing of "Guidelines for U.S.-China High Technology and Strategic Trade Development"
Commerce states that the Guidelines outline the importance of working cooperatively to achieve the mutual benefits of promoting U.S. high technology exports to China. Under the Guidelines, the Commerce Department and MOFCOM will continue to review U.S. dual-use policy to identity and implement appropriate processes to streamline the licensing process for legitimate civilian trade. Commerce states that the Guidelines also recognize the critical role of end-use visits in ensuring the protection of U.S. national security interests in the enhancement of high technology trade.
"These Guidelines are a positive step forward for bilateral, civilian high technology trade, " said Secretary of Commerce Carlos M. Gutierrez. "The Guidelines recognize China's status as the fastest growing export market for U.S. exports and memorialize our respective commitments to communicate and cooperate, through such forums as the JCCT, to promote the development of safe, secure high technology and strategic trade between our two countries."
The Guidelines were developed by BIS and MOFCOM under the auspices of the U.S.-China High Technology and Strategic Trade Working Group (HTWG). The HTWG was established at the 2005 JCCT as a mechanism for furthering U.S.-China cooperation on export control and high technology trade issues.
Commerce also signed a Memorandum of Understanding to Expand U.S. Exports to China, which would expand U.S. exports to 14 "second-tier cities" in China - "cities that, like the larger urban centers, are home to China's burgeoning middle class." Under the MOU, China will work with the Commerce Department to strengthen networks to reach more Chinese consumers and bring new technology and services to more regions in China.
In total, 11 agreements were signed at the signing ceremony on December 11, 2007. The complete list can be found here.
China and U.S. Sign Food Safety Agreement
On
December 11, 2007, the New York Times
reported that
China and the United States signed an agreement
calling for a greater U.S. role in certifying
and inspecting Chinese food exports, which
includes an increased presence of U.S. officials
at Chinese production plants. The agreement
imposes new registration and inspection
requirements on Chinese food exports for 10
specific products. The U.S. government will
maintain a public list of the exporters'
records.
The report states that,
Michael Leavitt, secretary of health and human services, said he expected that officials of the United States Food and Drug Administration would eventually be embedded in China’s food safety bureaucracy to help train Chinese officials and keep records on their inspections. He offered no numbers on how many officials would be involved, however. “The Chinese recognize, as do we, that having F.D.A. personnel here would expedite the process of capacity building and increase cooperation and communication,” Mr. Leavitt said. “I am optimistic that it will occur.”
Although the agreement was not as sweeping as American officials may have hoped for, they stated that it was a start and could be expanded. The agreement is to cover some preserved foods, pet foods, and farm-raised fish -- all products that have come under suspicion of being tainted recently.
Senate Votes 77-18 to Approve Peru Free Trade Agreement
On December 5, 2007, the United States Senate voted
77-18 to approve the
U.S.-Peru
Trade Promotion Agreement
as reported by the Washington Post
here.
The Senate approval comes after the House voted
285 to 132 to approve the agreement. The
agreement will now be sent to the President for
approval.
The Washington Post reports that this agreement is
the first bilateral trade agreement approved by
Congress this year and is also the first under a
Democratic formula that requires negotiators to put
labor rights and environmental standards on par
with tariff reductions, investor protections, and
other key elements of the accord.
As reported, the agreement:
The Administration is now urging Congress to approve three other pending bilateral trade agreements with Colombia, Panama, and South Korea.It would immediately eliminate duties on 80 percent of U.S. consumer and industrial product sales to Peru and most agriculture goods, and gradually phase out all tariffs. Almost all Peruvian goods already enjoy duty-free status under trade breaks the United States extends to Andean nations to boost their economies and provide alternatives to illicit drug production.
Legislation Introduced to Reduce DDTC Processing Times
The centerpiece of the proposed legislation is the imposition of mandatory average processing times. For transactions not subject to Congressional notification requirements, for example, licenses to NATO members, Australia, Japan, New Zealand, and Israel must be processed, on average, within 20 days; 30 days for exports to major non-NATO allies; and 60 days to everyone else. Commodity jurisdiction requests would be required to be acted upon by DDCTwithin 60 days on average.
DDTC's average processing times for Technical Assistance Agreements (TAAs) would need to be 120 days. It’s not clear why the proposed legislation would permit a significant delay in processing TAAs when license requests are put on such a short string. Further, the time limit doesn’t cover approving amendments to TAAs, even though the most significant delays currently being experienced are with respect to such amendments.
The proposed legislation would also significantly change the current provisions of the International Traffic in Arms Regulations (ITAR) relating to exports of spare parts. Under the proposed changes, a DDTC license would not be required for exports of spare and replacement parts to NATO members, Australia, New Zealand and Japan in specified circumstances, including that the parts and components are one-for-one replacements for parts and components for an item previously exported pursuant to a DDTC license. Under section 123.16(b)(2) of the ITAR, components or spare parts can be exported without a license in support of a defense article previously authorized for export as long as the value is under $500, the parts are going to the end user and not a distributor, and no more than 24 shipments are made per year to the end user. If this proposal is adopted, spare parts can be exported even if their value exceeds $500 and more than 24 shipments are made per year.
China Agrees to End Subsidies Challenged by the U.S. in the WTO
China agreed to sign a Memorandum of Understanding (MOU) that is designed to settle a WTO case that the United States and Mexico initiated in February 2007. In the WTO case, the U.S. had alleged that China was maintaining several subsidy programs that are prohibited under WTO rules. The USTR states that most of the challenged subsidies were tied to exports, giving an unfair advantage to Chinese products and denying U.S. manufacturers the chance to compete fairly with them in the U.S. and in third countries.
Under the MOU, China has committed to complete a series of steps by January 1, 2008 to ensure that the WTO-prohibited subsidies cited in the U.S. complaint have been permanently eliminated, and that they will not be re-introduced in the future.
The agreement was made only two weeks before the USTR is to join Treasury Secretary Henry M. Paulson Jr. and other Cabinet members for a high-level meeting of the "strategic economic dialogue" with China that Paulson launched last year to reduce tensions with China.
The USTR's remarks on this issue can be found here.
HHS Secretary to Visit China to Strengthen Safety of U.S. Imports
While in China, Secretary Leavitt hopes to finalize two binding agreements to ensure the safety, quality, and effectiveness of food, feed, medical devices, and drugs exported to the U.S., and a third agreement to strengthen the U.S.-China partnership in combating HIV/AIDS.
Secretary Leavitt chairs the President's Cabinet-level Import Safety Working Group, convened in July. The group issued its Action Plan to improve import safety to President Bush earlier this month.
White House Battle with Congress May Be Brewing for Arms Sale to Saudi Arabia
World Tribune reports that while the Administration believes they have the support needed in Congress to approve this sale, others believe opposition is growing both publicly and privately. If a battle ensues over the proposed sale, it would mark the first fight between Congress and the White House over an arms sale to Saudi Arabia since 1990 when the House persuaded the administration of then President George H. W. Bush to reduce the $20 billion defense package to $7.3 billion and remove the airborne early warning and control aircraft and the KE-3 tanker aircraft.
Officials of the Bush Administration say that the proposed sale would be formally relayed to Congress soon while prenotification of the sale was given to House Speaker Nancy Pelosi on November 13, 2007. The article states:
"People of all political stripes have come out against this deal," Rep. Anthony Weiner, a New York Democrat said. "It's mind-bogglingly bad policy because the Saudi's at every turn have been uncooperative. The idea that we are going to reward the Saudi's with precision weaponry is a stunningly bad idea, and clearly deserves the full review of Congress."
Interagency Working Group on Import Safety Presents Action Plan to President Bush
More information can be found at: www.importsafety.gov.
House Passes Peru Free Trade Agreement
U.S. Trade Representative Susan C. Schwab issued the following statement:
Today’s vote marks an historic achievement for the U.S. and Peruvian people. The U.S.-Peru Trade Promotion Agreement is the foundation of an enduring partnership with one of America’s key friends and allies in Latin America. … I look forward to an equally strong and bipartisan vote as soon as possible in the Senate, and additional successes on the Colombia, Panama, and Korea FTAs.
Her full statement can be found here.