The department store charges the customer the 10 percent VAT, or $2, for a grand total of $22. The clothing company then gets a rebate from the federal government for 50 cents because it already paid 50 cents to the fabric supplier.Ī customer then comes into the department store and buys the shirt for $20. Once the T-shirt is made, a clothing company sells it to a department store for $10, plus $1 in VAT, for a total of $11. The supplier then sends that 50 cents to the federal government. The supplier charges the clothing company the 10 percent value-added tax, or 50 cents, for a total of $5.50. Here’s how it works: To make a T-shirt, a clothing company would buy fabric from a supplier for $5, for example. In a sales tax, the tax is collected only when a customer buys a product, “whereas, under a value-added tax, the tax is actually collected in stages along the production process,” Kyle Pomerlau, chief economist and vice president of economic analysis at the nonpartisan Tax Foundation, told the PBS NewsHour. But the way the tax is collected is different. It’s a percentage of the price that gets added on to the goods and services you buy at the store or online. What is a VAT tax?Ī VAT is similar to a sales tax or other consumption tax. The first-time presidential candidate proposes paying for the monthly distributions, in large part, by implementing a new 10 percent value-added tax (VAT) on goods and services. Yang plans to give every American adult $1,000 a month in universal basic income, as a way to offset job loss from automation. As Andrew Yang takes his place among the top 10 Democratic presidential candidates during a debate in Houston this week, the entrepreneur’s central campaign proposal - and the new tax he wants to use to pay for it - could soon come under increased scrutiny.
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