\-\-\-\--Original Message\-\-\-\--

From: Hannes Poetter
\[[[mailto:hpoetter@classicnet.net]{.underline}](mailto:hpoetter@classicnet.net)\]

Sent: Wednesday, March 09, 2005 3:34 PM

To: comments

Subject: national sales tax

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Hannes M. Poetter

Paola, Kansas

Phone (913) 294 3000

Mobile (913) 731 6600

\<[[mailto:hpoetter@classicnet.net]{.underline}](mailto:hpoetter@classicnet.net)\>
hpoetter@classicnet.net

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[[www.quolife.com]{.underline}](../www.quolife.com)

Hannes Poetter

P.O. Box 510

Paola, Kansas 66071

913 731 6600

<hpoetter@classicnet.net>

Out Tax System and why we are losing manufacturing jobs in the USA

In the 1960's the European nations came up with a wonderful scheme to
collect more taxes but at the same time create an import barrier and
export incentive disguised as their national tax systems.

This system called the Value Added Tax or for short VAT, has now
blossomed to staggering numbers and is responsible for the majority of
the Trade Deficit with the USA. In the case of Germany this tax is 16.0
% and in the case of France it has reached 19.6 %. This system has been
adopted by most Nations around the world.

Now, how could this inventive "Sales Tax" wipe out thousands of US
Manufacturing Jobs?

This VAT tax is included in the price the World consumer pays (except in
the USA) and not kicked out separately like normal US "Sate Sales Taxes"
and has become part of daily life.

It sounds so harmless but it impacts the trade balance with our Nation
in the most dramatic way and here is why:

To understand the equation you have to realize that the cost of labor is
part of the price calculation of the price of any manufactured product.
You also have to realize that the payroll taxes we have in the US, which
consist of the income tax to the employee as well as the FICA taxes
which are paid by the employee and the employer in equal parts are
therefore also part of the manufactured product cost calculation.

Let us assume that the costs of the raw product, corporate expenses,
utilities, net wages and other factors that go into the price
calculation of a consumer product are equal in the USA and in Europe.
Let us now assume that the French company is looking for the same profit
margin as the US Company.

Let us now assume that the payroll tax burden difference in the US is 15
% higher than in France (and that is just our FICA).

A product that would cost the consumer \$ 2,000.00 in France plus 19.6 %
VAT or \$ 2,392.00 would cost the US consumer \$ 2,300.00.

So, what is the big deal you might ask?

You have to understand that each product that enters France has to add
19.6 % in VAT tax, while each product that leaves France does get the
VAT Tax rebated.

What does this mean now?

(For easier understanding I will leave the Freight out of the equation
because it applies equally to France and the US.)

The US product including its payroll tax burden reaches France at \$
2,300.00 and with the addition of the VAT tax becomes \$ 2,750.80 or \$
358.80 above the French product.

The French product leaves France without VAT tax and without the payroll
tax difference and can be sold to the US consumer at \$ 2,000.00 or \$
300.00 under the US product.

Did you notice? Nobody is talking about "export incentives" or "import
tariffs".

What would happen if the US would go to a VAT system?

First of all the discrepancy with France, Germany and all the other EEC
Nations, and most of the rest of the world, would disappear over night
and make US products highly competitive in Europe and the world, while
adding the US VAT tax to the imported European/World products, lifting
them to the same price level or higher than US produced goods and
services.

For Commerce with the rest of the world it would mean that any product
entering the US would be sold including the VAT or Sales tax. Let's go
back to the product example from above and let us assume we would adopt
a 15 Vat tax and reduce the payroll tax in equal proportion.

The US manufactured product would drop for its base price from \$
2,300.00 to 2,000.00 plus the VAT tax of 15 % would still be \$ 2,300.00
to the consumer.

The same product manufactured in a cheap labor market would leave that
export country at \$ 1,700 and arrive after ocean freight, loading and
unloading expenses, and insurance at \$ 2,000.00 undercutting the US
Product in the past by \$ 300.00. But now the Vat tax is added and it
has to compete with the US product on equal footing of \$ 2,300.00.

Now, granted, I am throwing numbers at you that for the reason of
simplifying my argument are painting a broad brushed picture. But it
does not take away from the fact that we are putting ourselves at a
disadvantage to the world market by 20 to 40 % by holding on the most
archaic Tax System in today's global economy.

With our current imports of 1.5 trillion Dollars at a 15 % rate it would
raise 225 billion Dollars in taxes on goods that are not taxed right
now. By lowering the payroll tax and taking it out of the "product cost"
equation, exports would increase, creating more jobs and bringing
factories back to the US.

While we would decrease our Trade deficit dramatically we would increase
domestic factory output for the increased domestic demand plus the now
more competitive export market.

When will our lawmakers wake up and take the single most important step
to put our American Manufactures back into business by putting them on
equal footing with the rest of the world??

Even our neighbor to the south has a 10 % VAT tax. The \$30,000 car
build in the US including Payroll tax portion sells for \$33,000 in
Mexico while the Mexican built car (Chrysler, Chevy, and others) do not
have the payroll tax burden and can therefore sell in the US for 15-20 %
under the equivalent US price or for about \$24,000.

Mind you, this is just the Tax difference and does not take the lower
labor cost into account.

Did you know that China has a 17% VAT rate on top of its import duties
and its export incentives, creating a import/export swing factor of
almost 50 % of product value at its border??

We need to change out Tax System to compete in the world economy to a
consumption Tax like a Sales Tax or a VAT Tax.

Make it happen

Hannes Poetter