I'm delighted to report that 95% of people prefer in-your-face taxes to stealth taxes, thanks to everybody who took part.
Like many things with tax and economics, this is counter-intuitive, but as Lola explains in the comments to the poll:
Price is a signal. Clarity for state revenue gathering reveals this signal. That's why lefties do stealth taxes. If it was clearly revealed just how much of what you earn and spend went on The State, the taxpayer would not put up with it. In particular I loathe PAYE. No employee reads anything but the bottom line. If employees were paid gross and required to remit their own monthly income tax payment you can bet your bottom dollar rates would go down pretty damn' quickly.
While PAYE, and Employer's NIC in particular, are stealth taxes in that sense, at least people are vaguely aware of the rates and can look up how much is deducted from their pay, it strikes me that the stealthiest tax of all is VAT, which as I never tire of saying, raises twice as much as corporation tax from only half the economy. The myth that this is a tax on 'consumption' needs firmly debunking - it is a tax on turnover of certain types of business.
If VAT really were a tax on consumption then 'consumers' (the very people who are best placed to decide what gets produced) ought to realise that they pay four times as much in VAT as they do in Council Tax, which, being an in-your-face tax is probably the most hated tax relative to the amount is raises, which in the context of this debate seems to be A Good Thing.
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Anyway, seconds out, round two -what's the 'fairest' kind of tax? Vote here or use the widget in the sidebar.
Sunday, 17 May 2009
In your face!
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8 comments:
Mark said: "The myth that this [VAT]is a tax on 'consumption' needs firmly debunking - it is a tax on turnover of certain types of business"
I have never understood this argument. Can you please try to convince me why sales taxes aren't really taxes on consumption. Seriously, I genuinely don't understand your POV.
P, let's imagine two economies where everybody is a sole trader, there are no import or export restrictions between the two and which are identical except for their tax systems and contrast the two extremes:
1. In tax system type 1, there is a flat income tax of 10% on all incomes (and no turnover tax). I am a farmer with negligible overheads, I grow £100's worth of wheat, I sell it and pay £10 tax and spend my £90 on other stuff (or put it aside for a rainy day), so I can pay for £90's worth of goods and services on the back of my own efforts.
2. In tax system type 2, there is a flat turnover tax of 10% on all types of turnover (but no income tax). I grow my £100's worth of wheat, sell it for £100 and keep £90 to spend on other stuff. I can't sell for more than £100 otherwise the farmers from the other country will undercut me.
The Big Fat Lie that tax system 2 is a tax on 'consumption' and tax system 1 is a tax on 'production' is only sustainable if you assume that the each sole trader can 'pass on' the full tax and sell his goods and services for £111 and not £100.
Even if this were true, out of the £100 that each sole trader keeps, he can only buy goods and services with a value of £90 (because he has to pay another £10 turnover tax or VAT on top each time he spends money).
'Consumption taxes' in the narrower sense of fuel duty (to pay for road maintenance etc) are acceptable in my book, but not a blanket tax like VAT.
Mark, having read your response twice, I still can't see you answering my question (and I'm not intending to sound belligerent or anything!)
Your points are all about implementation issues, and the consequences of a particular implementation.
Your example also attempts to show the (presumed) negative effects of two identical tax rates; but they aren't, are they? As you point out, sales taxes can 'compound'. Your example would only demonstrate a practical disadvantage to a sales tax in an economy where gross income is identical to gross spending.
You also presume a perfectly operating market, conditions that don't exist in the real world.
Like you, though, I can see that I'm getting drawn into implementation issues! I'd be grateful if you could address the above, but also the original question: how is a sales tax not a tax on consumption?
Cheers.
Or alternatively, let's concentrate on the simple fact that VAT IS a tax on turnover.
Let's just look at VAT-able businesses, for simplicity, and think about whether things would change if we replace it with a tax on turnover to consumers and exempted business-to-business supplies.
The answer is, things would not change at all.
Seeing as turnover is a basic measure of output and output is A Good Thing, surely a tax thereon (which depresses output) is A Bad Thing?
I suspect that we are disagreeing -- somewhat -- purely from a semantic point of view. When I say 'consumption', I mean consumption: the use of raw materials.
Whether that's consumption by a consumer (consumer goods) or a business (e.g. plant, or 'production goods') is irrelevant to me, and I would like to see both categories of goods taxed. How you'd decide what goods to tax would be determined by their status as 'finished' or 'unfinished'; this would ensure taxation at only one point in the chain for any particular good (although the equipment used to produce that good would, obviously, have been subject to prior taxation).
You say that 'output is A Good Thing'. In and of itself, no it isn't. If it's output of a good that is in demand when all costs are fully internalised then, yes, you can see it that way. But costs are not fully internalised, are they?
Income tax is a 'progressive' tax regime; it's based upon an ability to pay, rather than the net impact of an individual upon our raw material resource base (and manufacturing processes). Not all pay income tax, leaving those who do subsidising the consumption of those who don't. Redistributive policies bad, no?
P, I'm agreed there - consumption of 'raw materials' especially finite ones like fossil fuels is a suitable target for taxation, as is pollution, but we already have fuel duties and so on; similarly I think having a flat 1% or 2% tax on the cost of physical new goods to pay for refuse collection is also a good idea.
That's quite different to VAT on some goods and services (but not others), where the value of the service (or the goods, in many cases) bears no relation to the amount of finite raw materials consumed in the process of providing them.
I'm probably one of the few people who thought the "in your face" tax of the Community Charge was a good idea. I still don't understand how people who supposedly want "fairness" object to the idea that we should all pay the same for the services the council provides?
Stan, we've moved on from there, Part Two is whether you prefer Poll Taxes, flat taxes or jealousy surcharges.
My problem with the CC was that I think it's better to make people for The Value of whatever it is they get than to make people pay a made-up fraction of The Cost of a rag-bag of 'services' that may or may not benefit them.
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