House Members Join Senate To Introduce VAT Legislation

A bipartisan group of members of the House of Representatives has introduced legislation designed
to offset what they believe is a multi-billion-dollar trade advantage many overseas countries enjoy
as a result of their value added tax (VAT) systems. The House sponsors of the legislation include
several from textile-manufacturing states. The measure is similar to legislation introduced
recently in the Senate by Sen. Lindsey Graham, R-S.C.

The legislation, titled “The Border Tax Equity Act,” directs the US Trade Representative to
negotiate agreements with countries that use a VAT, but if negotiations fail, the United States
would impose an offsetting assessment at the US border on imported good and services, and would
issue rebates equal to the amount of the VAT taxes paid to other countries by US exporters.

Textile manufacturers say countries accounting for 95 percent of US trade have some form of a
border tax that is adjusted to benefit their industries. They say this amounts to an annual tax
advantage of more than $474 billion.

Following introduction of the legislation, George Shuster, Cranston Print Works,co- chairman
of the American Manufacturing Trade Action Coalition, said, “Border-adjusted tax schemes stand out
as one of the very worst offenders when identifying the reasons why the United States has suffered
terrible job and output losses, trade deficits and spikes in debt in recent years.” He added,
“Unless the United States addresses the competitive disadvantage caused by foreign border tax
schemes, it will never level the playing field for domestic manufacturers.”

Because a VAT for the United States is seen by many as a form of a national sales tax, it has
been politically impossible to enact such a tax. Supporters of the equity tax act feel it is an
approach to the problem that could have considerable support.

June 23, 2009