One of the usual suspects trotted out the usual lies and myths about VAT in today's CityAM Forum. He is perfectly happy with VAT of course, because neither health services nor higher education, nor being a quangocrat is liable to VAT:
The 50 per cent of income tax payers on lower incomes account for just 15 per cent of revenue. The longer-term aim should be to eliminate income tax payment for all those earning under £20,000. This, especially if we move away from national insurance as a tax, would create powerful new work incentives. It would reduce the fiscal costs of underemployment by bringing back into the workforce many who would otherwise have had the highest claims on public spending. It would give greater traction to the government’s much-needed reforms on welfare.
Fair enough so far.
This change could be funded by a shift to consumption taxes, mainly through a widening of VAT coverage to include the same range of goods and services as in other developed countries. Such a widening of the VAT base could raise the £20bn to £25bn required to lift 50 per cent of income tax payers out of income tax. It would raise VAT receipts by about 25 per cent.
Idiot. VAT is just a tax on the gross profits of businesses, which includes their wages of course. Whether a hairdresser pays £2 income tax or £2 VAT on a £10 hair cut makes little difference to the tax burden or its deadweight costs. As I showed last week, it is the most damaging tax of all.
The fact that VAT only applies to the productive economy and not land-based activities (housing, food, banking) just makes it worse. Note again: he does not suggest that VAT be applied to his own sources of income: health services, higher education or quangocracy.
Consumption taxes make sense in terms of a fairer distribution of the tax burden between those in and out of the workforce. They would be paid by the more affluent elderly and would, in effect, fund many of the extra benefits, like heating allowances, that come their way. It would mean that the baby boomers would make a fairer contribution.
VAT is not a consumption tax, it is a tax on economic activity and is the most immediate cause of unemployment (worse than Employer's NIC). If you want "the affluent elderly" to pay more taxes without clobbering the unemployed with a double-whammy of higher taxes and lower chances of employment, then collecting more revenue from the rental value of land is the way to go. That way there's more reward for working and more incentive to work.
Consumption taxes fall on imports, including imports of services, while income taxes are a tax on domestically-produced outputs.
Slightly true, but so what? If you want to be protectionist, then let's be honest about it and have import duties instead of VAT.
Consumption taxes also increase incentives to save.
Save the biggest lie for last.
VAT measurably reduces the size of the economy; it reduces people's earned incomes and profits disproportionately; it erodes the value of businesses. If people have less disposable income and there's less there to invest in, then it is futile worrying about Nanny-state "incentives to save", all that happens is that the price of the shrinking pool of assets - like house prices or shares in the pension funds of Baby Boomers - worth investing in gets driven up. Which is perhaps why the Home-Owner-Ists love VAT?
Insults
13 hours ago
