The discussion isn't about boosting GDP, but about where manufacturing labor takes place. The millions of people in the rust belt who are suffering don't care if them being out of work means a wealthy person in Silicon Valley can sell a few more ads overseas because exports eventually matches imports.
Mexico having a VAT does not do this. The US not having a VAT does not do this. The results of the US adding a VAT would not do this. VATs do not work the way you think they do.
> The discussion isn't about boosting GDP, but about where manufacturing labor takes place.
Where manufacturing labor takes place is not impacted by who does and does not have a VAT.
Jobs eventually wind up where it's economically efficient for those jobs to be. Are you implying that tax and trade policy have no impact on economic efficiency?
> Are you implying that tax and trade policy have no impact on economic efficiency?
Quite the reverse. A VAT is an efficient tax, and in particular is more efficient than income or capital taxes with lower deadweight losses. And in fact, if the US reduced capitals gains and corporate tax rates, and introduced a VAT, keeping its total tax take the same, I'd expect the US to become more economically efficient and employment to rise. (...not that I'd expect the US to introduce a VAT in this way of course.)
But that's neither here nor there. Your original comment was about international trade, trade deficits, and NAFTA, and none of it is true. A VAT does not subsidize exports, nor penalize imports, and 0% of the US balance of trade can be explained by its decision to not have a VAT, or the decision of many of its trading partners to have a VAT. If you want to argue that US economic policy is wrong headed and costing jobs then...yeah, it is. And a VAT is probably a key step on the path towards making major improvements. But that's got nothing to do with NAFTA.
VAT is regressive imho, because poorer people are affected by it more then richer people (in which you'd have to set up exemptions for food etc to balance it back). Capital gains tax ought to be the heaviest, wage tax ought to be the lowest, do that tax burden is held by those most able to hold it with out loss of quality of life.
In this context of optimal tax theory, it'd be referring to the "deadweight loss" of the tax (how much economic activity is reduced per dollar of revenue), and to how much it distorts behaviour. (When viewed another way, it's a measure of how easy the tax is to dodge.) Generally speaking, land taxes are the most efficient, followed by consumption taxes, income taxes, and finally taxes on capital are the most distorting.
> VAT is regressive imho
Correct. However as a general rule income redistribution is achieved much more effectively via spending than taxation. The most efficient, effective welfare states have relatively regressive taxes skewed towards consumption taxes (which as above are efficient and hard to dodge), and then use the revenue to fund programs targeted at the poor. By contrast the US uses very progressive taxes to fund programs largely targeted at the middle class. Empirically, this model doesn't work very well. :)
> Capital gains tax ought to be the heaviest
Capital gains is the least effective tax. It distorts behaviour, has high deadweight taxes, is the easiest tax to dodge, the economic burden is seldom felt by the intended targets. It's not good at redistributing income, and it's not good at raising revenue.
I live in a social democratic country with a strong welfare state funded by a fairly high VAT, with no capital gains taxes at all. It works quite well.
The US, in my view, has managed to get itself into a state where it tries to use the tax code to solve all social and economic problems. Instead of universal health care we have tax deductions for employee provided insurance, and subidies and penalties for individual insurance, handed out via the tax code. instead of welfare payments we have EITC. And when it comes time to look at at inequality, the discussion starts (and stops) with an argument about how progressive the US tax system is. At this point almost any reform will make the US tax code more regressive; the trick is to realise that's okay. Social democratic states work best when you use the tax code to raise revenue, not bring about utopia. But that's a rant for another time. :)
That’s not entirely clear. Certainly even in the US it’s more “efficient” if tech were anywhere but SF, but that’s not the case. Trade happens when countries agree to it, according to local taxes imposed, etc. China and Mexico did not have the manufacturing might they do now before trade deals allowed that flow, combined with a cultural trend in management to “outsource” everything and local in China and Mexico strategy to be that source (by doing things like heavily subsidizing energy, shipping, etc.)
There are lots of economic factors that make SF the most efficient place to open an office, cheap land and labor are not those reasons.
Yes, we're in agreement that China and Mexico have benefitted from our trade policies at the expense of millions of Americans losing their high paying union jobs where they had a stake in the value of production. Of course the financiers on Wall Street were happy to send those good jobs to desperate people in poorer countries. But maybe we could find a better balance between benefitting Wall Street and benefitting Main Street.
