Wednesday, 6 January 2021

Killer Arguments Against LVT, Not (486)

KLN: "VAT works to deter landlordism. LVT doesn't."

Seriously.

Sam Bowman of the Adam Smith Institute posted this as a reply on Twitter.

16 comments:

Graeme said...

I suggest that he doesn't know very much about VAT and its colossal deadweight costs. It's mind-boggling in that VAT doesn't apply to land anyway

James James said...

You've been pranked by Sam bRowman

James James said...

Sam Bowman does have some weird opinions about VAT. He seems to think it is entirely incident on consumers, rather than mostly on producers. He also argues it's regressive but not that regressive, since rich people buy more stuff.

Mark Wadsworth said...

G, he does know, he just pretends not to know

JJ, is it the same person? Does he run his own parody account of himself?

As to incidence, a lot of supposedly Clever People believe that. I was chatting to an economics lecturer once and explained to him all the logic and evidence. He listened patiently, appeared to understand and then said "But it's still paid by the consumer".

James James said...

It's not run by Bowman. It exists to wind people up by taking over from Bowman in threads so they don't notice the difference.

James James said...

The think-tank right have a history of liking sales taxes. Douglas Carswell wrote something for the IEA arguing to replace council tax with local sales tax.

The idea that it is a tax on consumption is used to argue that it's an efficient alternative to income and wealth taxes, that supposedly doesn't hit investment. They argue that it hits rich people more, as though that is a good thing. Of course, in reality it is just replacing corporate income tax with corporate revenue tax: crazy!

Mark Wadsworth said...

JJ, OK, thanks.

Correct, let's call it what it is - 'sales tax' on 'tax on gross profits' or 'tax on added value'.

Shiney said...

@MW et al

"But it's still paid by the consumer"

I come across this all the time - can't seem to cut through the 'feels'.

If the name was changed to Gross profit tax (which as you say, is what it is) then a lot more businesses would be against. If you could calculate the the dead weight costs for each business and show 'em the bill it'd be an easy sell.

I've been an accountant for all my working life and a lot of the bookkeeping part is geared towards VAT compliance - basically if there was no VAT then half of the accounting staff and a good number of the profession would be out of a job. Plus a load of software developers. And most of HMRC. If that isn't reason enough to gte rid of it, I dunno what is.

M

Mark Wadsworth said...

S, agreed. VAT and PAYE compliance is the worst. VAT is just less forgiving than PAYE as it's all so vague. OTOH, doing the year end accounts and the corporation tax return is a few hours work.

James James said...

There's a pattern here: who pays the bill is never the actual incidence: council tax, business rates, stamp duty...

Reversing these would be a good first step

Lola said...

Shiney. Agreed. In spades. Doubled. Vested interests rule OK.

mombers said...

It's not really a tax on gross profits IMHO. Inspect most bankruptcies and you'll find a non-zero VAT bill. If the business was profitable on a gross basis (whatever that means) it would have a zero VAT bill surely? At best you'd have output VAT = input VAT but I doubt you'd ever see a bankruptcy with a net negative or zero VAT bill.
So a straight up turnover tax?

Mark Wadsworth said...

M, no. VAT is a tax on gross profits i.e. sales minus goods purchased. There is no deduction for wages (usually the largest expense). So there are (or were, or could be) plenty of businesses which would be profitable if there were no VAT.

Assuming that most of the VAT is borne by the supplier, if there were no VAT, their income would jump by about one-sixth. Happy times!

Mark Wadsworth said...

M, to sum up, the total tax bill of a VAT-able business would not be much different if they increased Employer's NIC to 30% and corporation tax to 37%. Which sounds as shit as it is.

mombers said...

MW gross profits aren't very helpful for a business with fixed costs as these can't be deducted. So businesses who say make a £10k profit absent VAT get pushed into a loss by a £20k VAT bill, and eventual insolvency. Even if corp tax was 99%, the business could survive.

Mark Wadsworth said...

M, exactly! VAT is clearly very damaging, corporation tax much less so.