a commentary on taxes

[Francesca R]

No civilization ever collapsed because the poor were too well-fed, or because there was little competition from outsiders for the trade in a community.

Plenty of state-sponsored confiscation schemes collapsed while masquerading as exactly that to the people they violated.

 

[Francesca R]

Okay, from what little reading I've done so far (the value added tax is a bit confusing, but I'll get it), a value added tax *is* being proposed now in our government. Which means I'd better be learning something about it, eh?

Dunno. Judging the efficacy of admin-Obama from here, it seems plausible that you won't get VAT, nor carbon trading, nor health reform. So they'll need another bubble or something instead.

/cheap pot-shot/apologies

 

[WildCat]

This just goes around and comes around. Where do consumers get their money from? So it all gets passed back to employers and welfare providers . . .

Sure some of it comes out of corporate profits.

Are profit margins lower for US companies than for European companies in the same industry?

 

[Lothian]

Does a value added tax add to the end price of a consumer product?

Yes

And are sales taxes still applied as well to the end consumer?

No VAT is instead of sales tax.

In other words, in each incremental step of production, to distribution and finally sale, a government is receiving multiple taxes on that one item? Have I got that right?

Yes, but ....the Government ends up with the full VAT due on the end product but at each stage of production it is only the added value that is effectively taxed.

Say VAT is 10% and a wood cutter chops down some wood and sells it to a lumber yard for £10 he would add on £1 of VAT

The lumber yard would process it and sell it to a furniture maker for £20 and they would add £2 of VAT

The furniture maker would make furniture and sell it to a customer for £40 and would add £4 of VAT.

But other than on the supply to the final consumer, the VAT paid on supplies bought can be offset against VAT charged on onward sales. So in the above example the Government ends up with the £4 VAT paid and they get it as follows

Wood cutter £1 charged = £1 VAT to Government
Lumber yard £2 charged less £1 paid = £1 VAT to Government
Furniture maker £4 charged less £2 paid = £2 VAT to Government

 

[leftysergeant]

No such thing is possible. Any tax on manufacturers ultimately must be paid by their customers, you and me.

And when that reaches a certain point and we are no longer able to buy the product, it hardly matters how much of it the manufacturer shirks. Further, it taxes the gross output of a factory, rather than the net profit that the factory makes. Exactly the opposite of what you want during an ecconomic down-turn.

I am also opposed to ad valorem sales and real estate taxes. This taxes a larger percentage of a working man's income, since he may already be spending most of what he earns just to obtain neccessities, leaving him little opportunity to amas capital to go into a small business of his own. Thus mega-chains and big box stores crowd out the local entrepreneurs who would actually provide more jobs for employees and local merchants. The wealthier investor, by contrast, will pay out a smaller percentage of his income for neccessities and sales taxes, and have a lot more money on hand to buy job opportunities out from under the small-time operators.

 

[Cain]

Is it true that Reagan raised taxes more than any other peacetime President?
What did that poster mean? I thought that Reagan lowered taxes, but did he only lower taxes for the extremely wealthy? And was that offset by an increase in Soc. Security taxes for everyone else? *Is* it a myth that Reagan lowered taxes?

To answer your question, it depends. Reagan apologists (falsely) claim tax cuts resulted in otherwise higher revenues, so, counter-intuitively, if the government collected more money, on this thinking, it's a credit to Reagan. Reagan's largely responsible for flattening taxes, but he had enablers in Congress, the people who actually make the laws.

I'm pretty sure the 26.9% figure in the article is ratio tax revenue to GDP, and the U.S. is typically the second lowest in the industrialized world (after Japan). Republicans in general are in favor of reducing the Federal Income Tax, even if it means raising payroll taxes. The payroll tax is regressive, and the income tax is progressive. David Cay Johnson, tax reporter for the NYT, hits all the major notes in his book Perfectly Legal.

Most importantly, tax cuts without spending cuts are not tax cuts. Such policies shift (or redistribute) the tax burden to future generations.

 

[sugarb]

YesNo VAT is instead of sales tax.

Yes, but ....the Government ends up with the full VAT due on the end product but at each stage of production it is only the added value that is effectively taxed.

Say VAT is 10% and a wood cutter chops down some wood and sells it to a lumber yard for £10 he would add on £1 of VAT

The lumber yard would process it and sell it to a furniture maker for £20 and they would add £2 of VAT

The furniture maker would make furniture and sell it to a customer for £40 and would add £4 of VAT.

But other than on the supply to the final consumer, the VAT paid on supplies bought can be offset against VAT charged on onward sales. So in the above example the Government ends up with the £4 VAT paid and they get it as follows

Wood cutter £1 charged = £1 VAT to Government
Lumber yard £2 charged less £1 paid = £1 VAT to Government
Furniture maker £4 charged less £2 paid = £2 VAT to Government

Hey, thanks! I get that. So the people in the steps of manufacturing a product who make the MOST from each unfinished product in each step pay a greater percentage of the VAT to government. Basically, it is everyone involved sharing the tax burden for an item. Everyone involved in profitting from an item, I mean.

I said that poorly, but...it's actually making more sense to me now. Thanks again.

 

[sugarb]

To answer your question, it depends. Reagan apologists (falsely) claim tax cuts resulted in otherwise higher revenues, so, counter-intuitively, if the government collected more money, on this thinking, it's a credit to Reagan. Reagan's largely responsible for flattening taxes, but he had enablers in Congress, the people who actually make the laws.

I'm pretty sure the 26.9% figure in the article is ratio tax revenue to GDP, and the U.S. is typically the second lowest in the industrialized world (after Japan). Republicans in general are in favor of reducing the Federal Income Tax, even if it means raising payroll taxes. The payroll tax is regressive, and the income tax is progressive. David Cay Johnson, tax reporter for the NYT, hits all the major notes in his book Perfectly Legal.

Most importantly, tax cuts without spending cuts are not tax cuts. Such policies shift (or redistribute) the tax burden to future generations.

Mmm, but if I recall correctly, Reagan ran up a huge deficit (?), which says to me based on your last sentence that yes, tax cuts were a myth. Interesting. One more question: what did the Clinton administration do differently that resulted in an actual lowering of the deficit?

 

[Lothian]

Hey, thanks! I get that. So the people in the steps of manufacturing a product who make the MOST from each unfinished product in each step pay a greater percentage of the VAT to government. Basically, it is everyone involved sharing the tax burden for an item. Everyone involved in profitting from an item, I mean.

Sort of, but then again not really. The tax is neutral until the final consumer. Although it is collected in stages the burden is passed.

Take the Lumber yard in the example. Without tax he buys wood for £10 and sells it for £20, making a £10 profit. With tax he buys for 11 (10+1) sells for 22 (20+2) and passes £1 tax to the government making an overall £10 profit, exactly the same as without tax. The same is true for everyone in the chain until you reach the final consumer, the member of the public who can't recover the tax or pass it on. The tax burden rests entirely with the final consumer.

The people in the chain are just 'unpaid tax collectors' (although they have use of the tax until they need to pay it across to the Government)

 

[Random]

Mmm, but if I recall correctly, Reagan ran up a huge deficit (?), which says to me based on your last sentence that yes, tax cuts were a myth. Interesting. One more question: what did the Clinton administration do differently that resulted in an actual lowering of the deficit?

As time passes, the natural population growth of the US causes the economy to expand over time. As the economy expands, tax revenue increases*. President Clinton just made sure that the US budget increased at a slower rate than tax revenue. Eventually, revenues caught up to expenditures and you had a balanced budget.


*This is sometimes used to explain that tax cuts increase tax revenue. As taxes are cut, the theory goes, the economy expands so tax revenues increase. Therefore, tax cuts can pay for themselves! This never seems to work in reality however, as the increased economic activity from the tax cuts is rarely large enough to make up for the loss in revenue from the reduced tax rate. If you meet someone using this argument, just ask them why we don't reduce taxes to zero percent. Surely this will have money pouring in, right?

 

[Kestrel]

Sales tax is generally applied at significantly lower rates than VAT (which is 15%-20%). Same for excise duties. The net result is that the US raises a significantly lower fraction of its government receipts from consumer spending. On that measure alone, it is less regressive.

The US does have other regressive taxes. For example, the 7.65% Social Security tax applies to incomes below approximately $100,000. Incomes above that figure don't pay any additional tax.

 

[Kestrel]

As time passes, the natural population growth of the US causes the economy to expand over time. As the economy expands, tax revenue increases*. President Clinton just made sure that the US budget increased at a slower rate than tax revenue. Eventually, revenues caught up to expenditures and you had a balanced budget.

It's not just population growth. Improvements in productivity allow the economy to grow faster then the rate of population increase.

 

[daenku32]

If it doesn't get passed to the consumers who pays it? I suppose you could pay your workers less, or offer fewer benefits, or fire some workers and try to get by with less, but it's not likely to come from corporate profits.

Since the corporate taxes are paid from corporate profits, that means that the consumers already paid for it, whether the government collects or not. It's not like the corporation is going to forgo profits just to save you money.

 

[WildCat]

Since the corporate taxes are paid from corporate profits, that means that the consumers already paid for it, whether the government collects or not. It's not like the corporation is going to forgo profits just to save you money.

When I' say "profits" I'm referring to profit after taxes, not pre-tax profit.

 

[Cain]

As time passes, the natural population growth of the US causes the economy to expand over time. As the economy expands, tax revenue increases*. President Clinton just made sure that the US budget increased at a slower rate than tax revenue. Eventually, revenues caught up to expenditures and you had a balanced budget.

But Clinton also argued to raise taxes on the rich, which Congress did. The top marginal bracket went up to almost 39%, a huge help in reducing deficits considering the "booming" economy of the 90s worked best for the super wealthy.

Inflation and population growth are ignored by right-wing flaks when it comes to claiming Reagan's policies grew the budget.

If you meet someone using this argument, just ask them why we don't reduce taxes to zero percent. Surely this will have money pouring in, right?

There is merit to the so-called Laffer Curve, the problem is that Republicans always insist we're to the right of the sweet spot. Martin Gardner's famous rendering in Scientific American:

 

[Darth Rotor]

Most state and local governments in the US do impose sales tax and other regressive taxes. This helps make the total tax burden in the US regressive instead of progressive.

This. ^^^^^

Sales tax and property tax are not all that add to the total tax bill.

See also clever stuff added as extra tax on one's cell phone and cable bills, added city taxes in, for example San Antonio, on any hotel night stay.

The hand never stops dipping into one's pocket.

DR

 

[Francesca R]

Over here, known as stealth taxes

 

[Kestrel]

This. ^^^^^

Sales tax and property tax are not all that add to the total tax bill.

See also clever stuff added as extra tax on one's cell phone and cable bills, added city taxes in, for example San Antonio, on any hotel night stay.

The hand never stops dipping into one's pocket.

DR

I suspect that the administration costs for many of the smaller taxes are rather high. For example, the town I lived in back in Illinois had an $8 yearly vehicle tax. It cost the city at least $2 per car to print the stickers and handle the paperwork.

 

[Lothian]

I suspect that the administration costs for many of the smaller taxes are rather high. For example, the town I lived in back in Illinois had an $8 yearly vehicle tax. It cost the city at least $2 per car to print the stickers and handle the paperwork.

I think you need to consider why the activity is taxed in the first place. Was the vehicle tax a revenue raiser or was it really to restrict in-town parking to residents? Sometimes a tax is more of a permit.

I think that was the case with the UK dog licence which was dropped in 1987 when the fee was 37.5p (4 years after the 1/2p was withdrawn!). I think it was designed ,not to raise money but, so that dogs could be matched to their owners. Obviously the bit of paper became redundant once studies proved that dogs could be matched to their owners on the basis of looks.

 

[Ohmer]

Mmm, but if I recall correctly, Reagan ran up a huge deficit (?), which says to me based on your last sentence that yes, tax cuts were a myth. Interesting. One more question: what did the Clinton administration do differently that resulted in an actual lowering of the deficit?

Gory details.

http://en.wikipedia.org/wiki/National_debt_by_U.S._presidential_terms

The debt shot up during the Reagan administration.