According to the US Constitution, the congress is supposed to determine the rates. But our government did not pay more attention to the Constitution a long time ago, so we also have to think about the implications of the president’s views on rates. Here Fortune Magazine:
Nevertheless, Trump blames the VAT of the US trade shortage with the European Union, which, according to the Census Bureau, reached second place after China, $ 236 billion, which reached $ 236 billion in 2024.
“A VAT tax is a rate,” Trump told reporters on Thursday.
That’s not true. A rate is a tax on the entry, while VAT is simply a tax on all domestic consumption, regardless of where the good or service is produced. Ultimately, the only big difference between a tax with added value and a sales tax is the way in which it is collected.
So what could the president have led to make a statement that is contrary to reality? It can be related to a comparison that seems to cause all kinds of confusion:
GDP = C + I + G + (X – M)
Because Import (M) appears in this comparison with a minus sign, many people wrongly start to reduce imports to reduce GDP. Not so, the entry has no direct effect on GDP, because they also appear as positive in consumption or investment (if the imported product is a capital.)
A VAT is a tax on all consumption, regardless of where the product is produced. There are two ways to collect a consumption tax. In America we collect the tax at the point of purchase. In Europe, the tax is applied to both the domestic production of consumer goods and also to consumer goods that have been imported elsewhere. Because VAT does not discriminate between domestic and foreign production, it is not a rate.
The sky is not green, it’s blue. And a tax with added value is not a rate. President Trump once suggested that ‘rate’ is the most beautiful word in the dictionary, which is why you would expect that he knows what a rate actually is.
You can claim that the president must have a lot of power to ‘get things done’. You can claim that a president cannot be expected to understand the economic principles of the basic range. But you cannot argue both points in one go.
In my opinion, rate is one of our ugliest words, associated with ignorance, xenophobia, statism and nationalism.