Monday 7 July 2008

Outbreak of commonsense ... at the EU?

I have long argued that VAT, especially VAT on services, and Employer's National Insurance are The Worst Taxes. Politicians like to palm these off as being 'taxes on consumption' and 'employers' contribution towards social security' rather than being 'taxes on production', but this is arrant nonsense.

The maths is quite simple. Assuming the employer needs to make a profit margin of 20% to cover his overheads and make a modest profit, for every £100 gross salary paid out (of which the employee nets £69), the employer has to charge £166 inclusive of VAT.* The combined effects of these two taxes set an incredibly high hurdle - any business that can't make that sort of margin falls by the wayside.

Via Christina Speight comes this bombshell: "EU executive unveils reduced sales tax proposal". Yes, they are still making it all far too complicated, but hey, it is a teensy-tiny step in the right direction!

Maybe somebody got round to reading the research prepared for the ECB? See page 19 of this.

* £100 gross salary plus 12.8% Employer's NI = £112.80, plus profit margin £28.20 = £141, plus 17.5% VAT = £166. Without these two taxes, the business would be profitable if they can charge a final price of £120.

4 comments:

Simon Fawthrop said...

You keep using that dirty word - profit.

The type of person that becomes a bureaucrat thinks that profit is only for rich, greedy, rapacious capitalists.

AntiCitizenOne said...

I look at it differently.

The easiest way to improve the productivity of the economy is via comparative advantage (i.e. the unforced exchange of time) taxes that interfere with this harm the economy.

Taxes that oppose rent seeking (LVT & IPT) can be economically positive if the money is cycled efficiently to citizens. I favour a citizens dividend for this.

Mark Wadsworth said...

AC1, for sure, the geonomists are probably right, I am just saying that there are Really Bad Taxes (VAT, Er's NI), Not So Bad Taxes (flat rate income/corporation tax) and borderline Good Taxes (i.e. LVT, user charges, licence fees).

AntiCitizenOne said...

What I'm most annoyed about is that we seem to have all bad taxes and no good taxes!