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As Trump reciprocal tariffs near, economists say VATs aren’t trade barrier

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A container ship at the Port of Hamburg in Hamburg, Germany.

Maria Feck/Bloomberg via Getty Images

President Donald Trump is planning to unveil reciprocal tariffs on Wednesday to retaliate against trade practices his administration deems unfair or discriminatory. Among the grievances is the “value-added tax,” or VAT, which Trump called “far more punitive” than tariffs in a Feb. 15 post on Truth Social.

Many economists, however, disagree with that characterization.

“It would be complete nonsense” to levy a tariff on U.S. trading partners in response to a value-added tax, said Erica York, an economist and vice president of federal tax policy at the Tax Foundation.

“A value-added tax does not distort trade,” York said. “It’s not a protectionist measure, so it makes no sense to retaliate against a VAT.”

The White House didn’t respond to a request from CNBC for comment.

The precise scope of reciprocal tariffs are unclear. President Trump suggested in recent weeks, for example, that there might be flexibility on reciprocal tariffs, but on Sunday he said that the tariffs would “start with all countries.”

What is a VAT?

Barclays' Matt Gianonni: The big question is how high reciprocal tariffs go

The U.S. is the only nation in the Organisation for Economic Co-operation and Development that uses a retail sales tax (rather than a VAT) as its main consumption tax, according to the OECD, which consists of 38 member countries.

VAT rates vary by country. Most European nations charge roughly 20%, for example, though the rate ranges from an 8.1% low in Switzerland up to 27% in Hungary, according to the Tax Foundation.

The average state and local sales tax rate is 7.5% in the U.S, the Tax Foundation said.

Why VATs aren’t like tariffs, economists say

Value-added taxes are different than tariffs, economists explain.

Nations apply VATs equally, regardless of where a good was produced. Foreign nations apply the same tax on domestic goods and imported U.S. products.

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By comparison, foreign tariffs may put U.S. goods at a relative disadvantage: U.S. goods are hit with an import tax but there wouldn’t be an equivalent duty on domestic goods.

Put simply, VATs don’t discriminate based on product origin, while tariffs do, economists said.

“What’s confusing — and, to be honest, just misplaced — [about the White House stance] is a VAT isn’t discretionary: It applies to domestic output as well as imports,” said Bradley Saunders, a North America economist at Capital Economics. “It’s not protectionist.”

How VATs and U.S. sales taxes are different

The OECD considers retail sales taxes and VATs to be in the same category: “taxes on general consumption.”

While consumers bear the ultimate cost of each, the taxes are collected differently, economists said.

The end consumer pays U.S. sales tax when they purchase a product.  

Trump says he may give a lot of countries breaks on reciprocal tariffs

By contrast, businesses pay VATs in stages across the supply chain, according to the business’ respective “value add.” Businesses get a tax break for their portion of the VAT, and the end consumer ultimately bears the tax cost, according to the International Chamber of Commerce.

VATs around the world are “border adjustable,” according to Eric Toder, a non-resident fellow at the Urban-Brookings Tax Policy Center.

That means a nation’s exports are exempt from value-added taxes, while imports (from the U.S., for example) are taxable, he wrote.

The World Trade Organization doesn’t view this as a trade barrier, economists said.

“The academic consensus is that adjusting VATs at the border — by levying VATs on imports but exempting exports — does not distort trade flows as long as imported goods are subject to the same VAT rate as domestic goods,” wrote Benzarti and Tazhitdinova of UC Santa Barbara. “For this reason, VATs, as they are currently implemented, are considered to be trade neutral and the [WTO] allows border adjustment of VATs.”

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Personal Finance

How to file for a free tax extension if you can’t make April 15 deadline

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Galina Zhigalova | Moment | Getty Images

If you can’t file your taxes by the April 15 deadline, there’s a free, easy way to submit a federal tax extension online, experts say.  

Nearly 1 in 3 American admit that they procrastinate when it comes filing their taxes, according to a January survey of more than 1,000 U.S. filers from IPX1031, an investment property exchange service. In addition, about 25% do not feel prepared to file their taxes, the survey found.

As of March 21, the IRS received roughly 80 million individual returns of the 140 million expected this filing season, the agency’s latest reporting shows.

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Many natural disaster victims have an automatic tax extension, which varies by jurisdiction. Military members serving in a combat zone also have more time to file. 

However, the federal tax deadline for the majority of taxpayers is April 15. It’s possible to push that due date to Oct. 15 by filing for an extension.

But “it’s an extension to file, not an extension to pay,” said Jo Anna Fellon, managing director at financial services firm CBIZ.

“It’s an extension to file, not an extension to pay.”

After the tax deadline, you will start incurring the failure-to-pay penalty of 0.5% of your unpaid taxes for each month or partial month that your taxes remain unpaid. The failure-to-pay penalty has a maximum charge of 25% of your unpaid taxes.

That’s cheaper than the failure-to-file penalty, which applies when you don’t submit your return by the deadline. The failure-to-file penalty is 5% of unpaid taxes monthly, also limited to 25%.

But you’ll also owe interest on your unpaid balance, which is currently 7% and accrues daily after April 15.

You can estimate your taxes owed by creating a “pro forma return” — or mock version of your filing — using as many tax forms as possible, Fellon said.

The ‘easiest way’ to file an extension

There are a few free options to file a tax extension.

For federal taxes, you can complete Form 4868 and mail it to the IRS. But it’s better to file digitally to avoid processing delays amid the agency’s shrinking workforce, experts say. Paper filing can also increase fraud risk, they say.

The “easiest way” is by choosing “extension” when making a payment for 2024, which automatically submits Form 4868, according to Tommy Lucas, a certified financial planner and enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida.

“It takes all of five minutes,” and you can double-check the transaction via your IRS online account, he said.

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Alternatively, you can file your extension for free online via IRS Free File, a public-private partnership between the IRS and several tax software companies.   

For the 2025 season, you can use IRS Free File for returns if your adjusted gross income, or AGI, was $84,000 or less in 2024. But there’s no income limit to file an extension, Lucas said.

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Trump administration loses appeal of DOGE Social Security restraining order

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A person holds a sign during a protest against cuts made by U.S. President Donald Trump’s administration to the Social Security Administration, in White Plains, New York, U.S., March 22, 2025. 

Nathan Layne | Reuters

The Trump administration’s appeal of a temporary restraining order blocking the so-called Department of Government Efficiency from accessing sensitive personal Social Security Administration data has been dismissed.

The U.S. Court of Appeals for the 4th Circuit on Tuesday dismissed the government’s appeal for lack of jurisdiction. The case will proceed in the district court. A motion for a preliminary injunction will be filed later this week, according to national legal organization Democracy Forward.

The temporary restraining order was issued on March 20 by federal Judge Ellen Lipton Hollander and blocks DOGE and related agents and employees from accessing agency systems that contain personally identifiable information.

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That includes information such as Social Security numbers, medical provider information and treatment records, employer and employee payment records, employee earnings, addresses, bank records, and tax information.

DOGE team members were also ordered to delete all nonanonymized personally identifiable information in their possession.

The plaintiffs include unions and retiree advocacy groups, namely the American Federation of State, County and Municipal Employees, the Alliance for Retired Americans and the American Federation of Teachers. 

“We are pleased the 4th Circuit agreed to let this important case continue in district court,” Richard Fiesta, executive director of the Alliance for Retired Americans, said in a written statement. “Every American retiree must be able to trust that the Social Security Administration will protect their most sensitive and personal data from unwarranted disclosure.”

The Trump administration’s appeal ignored standard legal procedure, according to Democracy Forward. The administration’s efforts to halt the enforcement of the temporary restraining order have also been denied.

“The president will continue to seek all legal remedies available to ensure the will of the American people is executed,” Liz Huston, a White House spokesperson, said via email.

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The Social Security Administration did not respond to a request from CNBC for comment.

Immediately after the March 20 temporary restraining order was put in place, Social Security Administration Acting Commissioner Lee Dudek said in press interviews that he may have to shut down the agency since it “applies to almost all SSA employees.”

Dudek was admonished by Hollander, who called that assertion “inaccurate” and said the court order “expressly applies only to SSA employees working on the DOGE agenda.”

Dudek then said that the “clarifying guidance” issued by the court meant he would not shut down the agency. “SSA employees and their work will continue under the [temporary restraining order],” Dudek said in a March 21 statement.

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Most credit card users carry debt, pay over 20% interest: Fed report

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Julpo | E+ | Getty Images

Many Americans are paying a hefty price for their credit card debt.

As a primary source of unsecured borrowing, 60% of credit cardholders carry debt from month to month, according to a new report by the Federal Reserve Bank of New York.

At the same time, credit card interest rates are “very high,” averaging 23% annually in 2023, the New York Fed found, also making credit cards one of the most expensive ways to borrow money.

“With the vast majority of the American public using credit cards for their purchases, the interest rate that is attached to these products is significant,” said Erica Sandberg, consumer finance expert at CardRates.com. “The more a debt costs, the more stress this puts on an already tight budget.”

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Most credit cards have a variable rate, which means there’s a direct connection to the Federal Reserve’s benchmark. And yet, credit card lenders set annual percentage rates well above the central bank’s key borrowing rate, currently targeted in a range between 4.25% to 4.5%, where it has been since December.

Following the Federal Reserve’s rate hike in 2022 and 2023, the average credit card rate rose from 16.34% to more than 20% today — a significant increase fueled by the Fed’s actions to combat inflation.

“Card issuers have determined what the market will bear and are comfortable within this range of interest rates,” said Matt Schulz, chief credit analyst at LendingTree.

APRs will come down as the central bank reduces rates, but they will still only ease off extremely high levels. With just a few potential quarter-point cuts on deck, APRs aren’t likely to fall much, according to Schulz.

Credit card debt?

Despite the steep cost, consumers often turn to credit cards, in part because they are more accessible than other types of loans, Schulz said. 

In fact, credit cards are the No. 1 source of unsecured borrowing and Americans’ credit card tab continues to creep higher. In the last year, credit card debt rose to a record $1.21 trillion.

Because credit card lending is unsecured, it is also banks’ riskiest type of lending.

“Lenders adjust interest rates for two primary reasons: cost and risk,” CardRates’ Sandberg said.

The Federal Reserve Bank of New York’s research shows that credit card charge-offs averaged 3.96% of total balances between 2010 and 2023. That compares to only 0.46% and 0.43% for business loans and residential mortgages, respectively.

As a result, roughly 53% of banks’ annual default losses were due to credit card lending, according to the NY Fed research.

“When you offer a product to everyone you are assuming an awful lot of risk,” Schulz said.

Further, “when times get tough they get tough for most everybody,” he added. “That makes it much more challenging for card issuers.”

The best way to pay off debt

The best move for those struggling to pay down revolving credit card debt is to consolidate with a 0% balance transfer card, experts suggest.

“There is enormous competition in the credit card market,” Sandberg said. Because lenders are constantly trying to capture new cardholders, those 0% balance transfer credit card offers are still widely available.

Cards offering 12, 15 or even 24 months with no interest on transferred balances “are basically the best tool in your toolbelt when it comes to knocking down credit card debt,” Schulz said. “Not accruing interest for two years on a balance is pretty hard to argue with.”

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