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VAT Taxes and Shareholders
This post originally appeared on AmericanShareholders.org
***
There's been a buzz going around this week that some Democrats on the Hill and even in the Obama White House are looking at a value-added tax (VAT) to pay for government-run health insurance.
You can read more about this at ATR. They also cover how this trial balloon was floated before by Bill Clinton back in 1993, and how VAT rates have risen over time with our major trading partners.
What's been left out of most of the analysis has been the impact on shareholders. At first glance, there wouldn't seem to be one. VATs are embedded in the price of a good, and ultimately paid for by the retail consumer.
However, a VAT is merely a very efficient consumption tax on corporate products. As such, the tax wedge should have a similar impact to that of the corporate income tax (that CBO has said about a third of which is paid for in the form of lower returns to capital).
A VAT will raise the price of goods, and thereby hurt sales. It's a safe bet that about 30% of any new VAT tax will be paid for in the form of lower share prices and reduced dividends. That hurts everybody who has a 401(k) or an IRA, not just direct owners of companies.
