More to the point: who cares?
Here's a handy chart from yesterday's FT, figures taken from OECD, IFS and HM Treasury (click to enlarge):
So really, VAT is quite flat as a % of income or spending (especially if you strip out the VAT on tobacco and alcohol, which is probably flat across income deciles in £-s-d).
Seeing as net household income/household spending is only about 60% of total income and VAT averages out at 11% of either (and that's at the old rate of 17.5%, which has now risen to 20%), I think we can safely say that VAT acts, by a circuitous and destructive route, as a flat tax of approx. 7% on people's gross incomes, whether earned (salary, wages, profits, dividends) or unearned (rents, welfare, pensions).
We will never know quite how the burden is shared between 'consumer' and 'producer' (I suspect it is split one-third to two-thirds) but as all taxes are ultimately borne by individuals (who might be consumers, producers or more likely both) it doesn't really matter, so when estimating people's total tax burden, I shall henceforth assume that VAT is 7% of gross income.
i.e. it may the case that a household with median income of £40,000 pays £2,800 in VAT out of its income minus tax/plus benefits; or it may be the case that people who work for/are shareholders in a VAT-able business have their gross income depressed by 7% (so in the absence of VAT, their gross income would be £42,800), or it may be anywhere in between - but however you split it, the two parts always add up to 7%-ish.
The main reason why VAT is The Worst Tax Of All cannot be measured like this - the real cost of it is all the businesses that fail (or never get off the ground); all the jobs that are destroyed (or never created) and all the free exchanges of goods and services (i.e. wealth creation) that are no longer profitable and hence do not take place; and of course, without these effects, receipts from less damaging taxes like income tax or corporation tax would be higher, and welfare payments would be lower etc - I suspect that if we just scrapped VAT, the 'loss to the Exchequer' would be about half the amount that VAT currently raises.
Put On Your Big Boy Pants, Maybe?
5 hours ago
2 comments:
The progressive / regressive debate is an interesting one. During the emergency budget I appeared on Dale's radio show, and made the point that you and others have observed, that considering the food / clothing / fuel exemptions etc, and excluding booze & fags, a VAT increase isn't necessarily grinding the faces of the poor disproportionately
I was immediately reviled by the great Dale (and his 'tax expert' in the studio) who declared that 'everyone knew' VAT was highly regressive
& since he had control of the microphone, that was that !
ND, sorry to hear that. But more importantly you should have told them that they were missing the point because VAT is largely borne by the supplier.
So e.g. it is a tax break for manufacturers of children's clothes paid for by manufacturers of grown up clothes (who are probably the same people), and more importantly, it is a tax break for farmers, banks, home builders and homeowners subsidised by just about every other industry.
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