Monday, 5 June 2017

Outbreak of common sense...

... in The Labour Party.

From The Guardian:

Labour will aim to help tens of millions of people who are struggling on lower incomes by cutting the rate of VAT if it wins the general election, the shadow chancellor John McDonnell has told the Observer...

... in a high-stakes move, he went further, saying his priority would be to deliver a “fair tax system” under which income tax rises for the highest earners would be followed by VAT reductions for all, when economic growth allows. Such a reduction, he said, would deliver the greatest proportionate benefits to those on low and middle incomes.

“The concept of fairness is at the heart of everything we do,” the shadow chancellor said. “When it comes to tax it will always be a fair tax policy. And if I can reduce the burden of taxation on middle and low earners I will do it as we grow the economy. I will do it.”

Asked what he had in mind, he added: “I think VAT is a real problem for many people. When we come out of Europe there is more flexibility on VAT, particularly in terms of the lower levels.”

There are statistics comparing the amount of VAT nominally paid by households with a) total income and b) total spending, taken together they show that VAT is a fairly flat tax. From Labour's point of view is A Bad Thing because they like "progressive" taxes. For some reason, lefties think that flat taxes are regressive; they are not, they are flat. Regressive taxes are regressive.

The point about VAT is not that low income people pay too much, but that it significantly reduces economic activity and hence causes business failure and unemployment - VAT is the reason that so many people are on low incomes in the first place.