Everything's going swimmingly!

The responses to last week's Fun Online Poll were as follows:
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Which tax do you think is more damaging to the UK economy?

Outright winner, with 80% of the votes: A tax on the gross margins of half of businesses, before deducting salaries, which raises £80 bn p.a.

Distant runner up, with 20% of the votes: A tax on the net profits of all businesses, after deducting all expenses, which raises £40 bn p.a.
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In case you're wondering what on Earth I was talking about, the 'tax on gross margins' is Value Added Tax, which the politicians and less-well-informed commentators palm off as a 'consumption tax' (thus glossing over the fact that one man's consumption is another man's production) but which is, mathematically and economically, either a tax on turnover or a tax on gross margins (depending on how you argue it).

In real life, on £100 of gross margin, the business pays £13.04 VAT (£100 x 15/115). Let's assume it pays out eighty percent of the remaining gross margin as salaries (under The Pareto Rule Of Thumb), so it keeps £17.39 net profit, on which it pays another £4.87 in corporation tax (£86.96 x 28% corporation tax), which gives us roughly the ratio four-to-one which we observe in real life.

It seems to me to be blindingly obvious that the £13.04 VAT payment* must hurt a VAT-registered businesses a lot more than the £4.87 corporation tax payment, bearing in mind that in bad times, it still has to pay the VAT but pays no corporation tax at all (possibly even gets a refund).

Non-VATable businesses on the other hand (primarily banks and residential construction companies) just pay £5.60 corporation tax on £100 gross margin before salaries, and that's the end of that. So not only does VAT contribute to a relatively high tax burden (A Bad Thing in and of itself), it also encourages investment in banking and residential construction (i.e. land speculation) rather than in properly wealth-creating activities (yet another Bad Thing). The least we can hope for is a level playing field, i.e. scrap VAT (once we've left the EU) and just let all businesses pay corporation tax at the same flat rate (the lower the better, that's a different topic).

* Sure, you could argue that the VAT burden is shared between employer and employee, in which employees of a VAT-registered business have an overall tax rate of 46.8%, once you net out VAT, Employer's NIC, Employee's NIC and PAYE/income tax, in which case VAT is a tax on and a barrier to full employment, one's as bad as t'other as far as I am concerned.
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This week's Fun Online Poll - "Which style of swimming did you learn first?"

Vote here or use the widget in the sidebar.

Which may seem a tad off-the-wall, it's just that I can remember that when I was a lad we started off by learning one particular type of stroke, but nowadays if you take your kids to swimming lessons, they teach them a completely different one. I was just wondering whether my experience was unusual or whether this is just a sign of the times.