Progessive Sales Tax?

[Tmy]

Great idea. But then, I've been saying the same thing for years...

Considering all the difft areas were govt spends money, youd a a phonebook sized checkist. Not to mention the accounting nightmare this would cause. Or unpopular yet needed areas that wouldnt get any $$.

 

[Jas]

Considering all the difft areas were govt spends money, youd a a phonebook sized checkist. Not to mention the accounting nightmare this would cause. Or unpopular yet needed areas that wouldnt get any $$.

Not neccesarily. It would obviously need to be quite pared down. Something quite generall. Very much like your property taxes - they're going to the school system, but you can say which one.

So it would be quite general - post-secondary education, infrastructure, disability benefits, senior benefits, etc, and you could check off your top five, or whatever. Or even divide it up into categories. And there are of course, certain departments that would be exempt from that - ie. obviously you need a court system, but things like building an overpass this year or raising tuition would probably fit under this sort of thing.

 

[Tmy]

Not neccesarily. It would obviously need to be quite pared down. Something quite generall. Very much like your property taxes - they're going to the school system, but you can say which one.

So it would be quite general - post-secondary education, infrastructure, disability benefits, senior benefits, etc, and you could check off your top five, or whatever. Or even divide it up into categories. And there are of course, certain departments that would be exempt from that - ie. obviously you need a court system, but things like building an overpass this year or raising tuition would probably fit under this sort of thing.

Isnt this why we elect people. SO they can put $$ where we'd like it to go. Do you want $200 million americans micromanaging govt. Or govt agencies unable to rely on what budget theyd have to work with?

 

[Dorian Gray]

I think I was writing my last post the same time you were writing this one, and answers this. So could you go back and read that and see if it makes sense, please?



Well, that is why I tried to define what I meant by "progressive sales tax" in case I was misusing terms.

Did you forget about credit cards? "Poor" people can buy whatever they want.

 

[Dorian Gray]

Re: Re: Progessive Sales Tax?

Bad idea, because it's fairly useless. Basically, you just break up the sale of certain items into parts to drop the tax rate. Want to buy a $20,000 car? No problem. Just pay for a $5,000 chasis, $5,000 engine, $5,000 for interior, and a $5,000 bill for assembly, and you've dropped your tax rate.

To the extent that it could work without being avoided (see above), it also gives a tax advantage to buying cheaper models of the same type of consumer goods, which means it encourages the production and consumption of lower-quality, less durable goods. Just like giving tax breaks for small businesses to purchase SUV's creates an artificial incentive for consumption that is otherwise stupid, tax incentives to buy cheaper goods is an artificial market distortion, and we can expect that the results of it won't be beneficial.

More generally speaking, though, you cannot hope to replace the income tax with a sales tax. States which have instituted sales tax rates above 12% consistently find massive avoidance of that tax, and the problem only gets worse as higher rates. The necessary rates for a sales tax to replace the income tax would be much higher (20% and above) - avoidance would be crippling. And even at low tax rates, there's always problems, because you end up having to make decisions about when the tax should be applied based on definitions of end users of the item, and that's NEVER a simple problem, even with existing sales tax. It doesn't matter too much at low tax rates, but that too will only get worse at higher tax rates.

The only manageable way to do a consumption tax at high rates is a VAT.

If you're having different tax rates for different price ranges, how is this functionally simpler or any different from the current system, which just takes money out earlier?

 

[Dorian Gray]

Re: Re: Re: Re: Re: Re: Progessive Sales Tax?

A VAT is a Value Added Tax. It's a consumption tax on sold goods, but unlike a sales tax, it's applied at every step of the sales chain (so no need to worry about defining the end user), but it's done as a percentage of the value INCREASE for the goods sold (which decreases the incentive to try to cheat at any one stage, and makes avoidance much less problematic than sales taxes at high tax rates). So, for example, if a retail store buys something in bulk for $1 a piece, and sells it for $1.10 a piece, they pay the VAT tax on that $0.10 increase (the value that they add for customers by providing the distribution chain). VATs are used extensively in Europe, and they work reasonably well.

Are you talking about the same Europe where INCOME tax rates hover around 50% on top of VATs? Would it work that well if they abolished income tax in this Europe, since doles would be untenable?

 

[Kerberos]

The EU VAT system (it is effectively a European Union tax, although imposed and revenue collected retained by the member states) seeks to address this by excluding certain things (or making them taxable at a rates of 0%) from VAT, such as food, books, newspapers and childrens clothes.

Whether the additional costs of administering a much more complex system outweigh the benefits of not paying VAT on "essentials" is another matter.

I don't think it could be called an EU tax. The EU does IIRC get a small percentage of the revenue from the VAT, and there's an EU imposed limit on the VAT of 25%, but up to that limit it's the decision of the member states what rate to have and whether to have any exceptions, In Denmark we have a 25% VAT for everything including books, food and children clothes. I'm not sure it's particularly costly to make exceptions though, I attended a meting with the "tax-spokesman" for the Danish Social Liberal party (the member of the parliamentary group who is responsible for their tax policy) last evening and he said that it would be quite easy to administer such a system with modern technology. He was against it for other reasons though, so I don't think he was playing down the problems.

 

[bjornart]

Actually, we have an emergency post-war VAT of 2% that'll go away as soon as we've rebuilt the country from the Nazi occupation. It's been adjusted a bit up and down since its inception, though...

Do you have a source for that? According to Wikipedia we have a VAT of 20% introduced January 1 1970 to replace the "moms" of 1964 which was 12% and only applied to the last transfer in the sales chain. It was adjusted to 22% on Jan 1 1993, 23% on Jan 1 1995 and 24% on Jan 1 2001.

It's completely possible that the a VAT of 2% was introduced after the war, but currently we have a VAT based on a law from 1969 and later changes to that law.

 

[bjornart]

Do you have an income tax in addition to VAT? Or did you ever have an income tax? Did VAT replace the income tax?

Yes, we have an income tax, and a business tax and...
I merely wanted to point out differentiating on types of goods has fewer of the problems, while retaining some of the benefits, of differentiating a VAT on price.

 

[PogoPedant]

Do you have a source for that? According to Wikipedia we have a VAT of 20% introduced January 1 1970 to replace the "moms" of 1964 which was 12% and only applied to the last transfer in the sales chain. It was adjusted to 22% on Jan 1 1993, 23% on Jan 1 1995 and 24% on Jan 1 2001.

It's completely possible that the a VAT of 2% was introduced after the war, but currently we have a VAT based on a law from 1969 and later changes to that law.

Source? Uhm... nope... A very quick browse of the law reveals references to a law of 1933, which is a bit too early for my statement, and a second reference to a law of 1969, which suits Wikipedia well.

 

[Jaggy Bunnet]

I don't think it could be called an EU tax. The EU does IIRC get a small percentage of the revenue from the VAT, and there's an EU imposed limit on the VAT of 25%, but up to that limit it's the decision of the member states what rate to have and whether to have any exceptions, In Denmark we have a 25% VAT for everything including books, food and children clothes. I'm not sure it's particularly costly to make exceptions though, I attended a meting with the "tax-spokesman" for the Danish Social Liberal party (the member of the parliamentary group who is responsible for their tax policy) last evening and he said that it would be quite easy to administer such a system with modern technology. He was against it for other reasons though, so I don't think he was playing down the problems.

It is very much an EU tax, in that the framework and rules are laid out in EU directives. Within that there is still a degree of flexibility to set rates and as previously mentioned the tax is retained by the member state NOT by the EU itself. See link for more info:

http://www.bbc.co.uk/dna/h2g2/alabaster/A528040

"In order that the countries of the European Union implement vaguely similar rules for VAT, the form the tax should take is governed by the 6th EC Directive. Whilst this legislation has no direct effect in any country, all member states must draw up local legislation enacting the provisions of the 6th Directive. However, if the local laws should differ from the intent of the 6th directive, tax payers can insist that the intent is applied. "

In the UK there are a number of exemptions and different rates of VAT. Supplies can be outside the scope, exempt, zero-rated, 5% or 17.5% (there might be others as well). Never believe a politician when he says anything will be easy to administer, because it is a safe bet that he will have no experience of actually doing so.

 

[Jas]

Isnt this why we elect people. SO they can put $$ where we'd like it to go. Do you want $200 million americans micromanaging govt. Or govt agencies unable to rely on what budget theyd have to work with?

Yes, but new things come up all the time, and feedback is important.

 

[Beerina]

For items that cost $100 or less, a sales tax of 2%, or somewhere in that ballpark. For items that cost $100 - $1000, a sales tax of 5%. And so on. You get the idea. The price range and tax percentage figures given in this example just being a WAG. I'm just laying down the principle.

It seems like you're assuming the more expensive an item it is, the more likely it is to be a luxury item.

The luxury tax on yachts was a predictable tragedy. Oh, damn it felt good to liberal politicians -- "Look what I've done to the rich, you poor people. I've bloodied their theiving noses! Vote for me!" Yet it just ended up decimating the yachting industry, said yachts being built by worrking class people who were laid off.

So everything a rich person buys, you reduce demand for it, and the working people who make all this stuff suffer. It is a needless kick in the balls to the economy -- and for what? For ancient socialist, discredited rhetoric?

We all believe in evolution around here. Just like evolution doesn't care how or why reproduction successfully occurs, neither do politicians care why re-election successfully occurs. The rhetoric works; use it.

But to the larger point is taxing the holy hell out of farm equipment, skyscrapers, factories, factory equipment, construction equipment, et al. going to help or hurt the economy?

Wise observers of history will note at this point the socialist heavy taxer politician sees myriad possibilities for political donations to get tax exemptions. Do not think this won't happen. Back to the evolution analogy: They do it because it works. Best not to insult everyone's intelligence by thinking this will have nothing to do with anything.

 

[Kerberos]

It is very much an EU tax, in that the framework and rules are laid out in EU directives. Within that there is still a degree of flexibility to set rates and as previously mentioned the tax is retained by the member state NOT by the EU itself. See link for more info:

http://www.bbc.co.uk/dna/h2g2/alabaster/A528040

"In order that the countries of the European Union implement vaguely similar rules for VAT, the form the tax should take is governed by the 6th EC Directive. Whilst this legislation has no direct effect in any country, all member states must draw up local legislation enacting the provisions of the 6th Directive. However, if the local laws should differ from the intent of the 6th directive, tax payers can insist that the intent is applied. "

I checked you link and I see why you call it an EU-tax, I didn't know it was actually mandated by the EU, It's not entirelly correct that the tax is retained by the EU meber states though, I checked and I remembered correctly, the Eu does get some of the VAT, it amount's to 14,4% of the EU budget. http://europa.eu.int/comm/budget/financing/index_en.htm

In the UK there are a number of exemptions and different rates of VAT. Supplies can be outside the scope, exempt, zero-rated, 5% or 17.5% (there might be others as well). Never believe a politician when he says anything will be easy to administer, because it is a safe bet that he will have no experience of actually doing so.

And you have? It's possible he's wrong of course, but I'll take his opinion over yours, at least in cases where I see no motive for him to lie.

 

[Jaggy Bunnet]

I checked you link and I see why you call it an EU-tax, I didn't know it was actually mandated by the EU, It's not entirelly correct that the tax is retained by the EU meber states though, I checked and I remembered correctly, the Eu does get some of the VAT, it amount's to 14,4% of the EU budget. http://europa.eu.int/comm/budget/financing/index_en.htm


And you have?

Thanks for the link - I wasn't aware that part of the member states contributions to EU funding was directly related to the VAT base of the member countries.

As for experience in administering VAT, I have no direct experience. I do however have 12 years of experience working as a corporate tax consultant alongside VAT experts, so my opinion is not entirely uninformed. Ask yourself if a tax that is easy to administer would have resulted in court cases around the following:

Whether a "jaffa cake" is a cake (zero rated) or a chocolate covered biscuit (17.5%). Ultimately it was held to be a cake on the grounds that when they go stale, cakes go hard and biscuits go soft, therefore as a jaffa cake goes hard it must be a cake. There is currently a case going to the ECJ on exactly the same point in relation to teacakes. So far that case has taken 10 years and cost an estimated £3.5m.

http://en.wikipedia.org/wiki/Jaffa_Cakes

Or whether buying a new pair of glasses was a supply of goods (the glasses - 17.5%) or of the dispensing services of the optician (exempt). In this case they decided it was a mixed supply and it was up to the optician to work out what percentage of the total selling price related to the goods/services (subject of course to challenge by the tax authorities).

http://www.fodo.com/page.php?id=12

Whether the supply of a listings magazine (exempt) as part of your satellite TV subscription (17.5%) is a separate supply (and therefore not subject to VAT) or part of a combined supply and therefore the full amount subject to VAT at 17.5%, even though part of what is supplied would be exempt if supplied separately. The answer of course depends on whether it is a separate company within the group which supplies the magazine!

http://www.deloitte.com/dtt/press_release/0,1014,sid%3D2834%26cid%3D73500,00.html