Do we need a VAT?

[ChrisL68]

I have posted this before. This is a good read on why a consumption tax won't work and why the VAT is the preferred course for a transaction-based tax regime.

http://taxprof.typepad.com/taxprof_blog/files/bartlett_fair_tax.pdf

Any consumption tax would be in addition to a income tax. The people who think that government is magically going to shrink to the level where we can fund it with solely a consumption tax are living in a dream world.

 

[DeacMan]

I have posted this before. This is a good read on why a consumption tax won't work and why the VAT is the preferred course for a transaction-based tax regime.

http://taxprof.typepad.com/taxprof_blog/files/bartlett_fair_tax.pdf

Any consumption tax would be in addition to a income tax. The people who think that government is magically going to shrink to the level where we can fund it with solely a consumption tax are living in a dream world.

The way we spend money right now, we can't fund the government regardless of the tax system we put in place.

 

[Deacon923]

I have posted this before. This is a good read on why a consumption tax won't work and why the VAT is the preferred course for a transaction-based tax regime.

http://taxprof.typepad.com/taxprof_blog/files/bartlett_fair_tax.pdf

Any consumption tax would be in addition to a income tax. The people who think that government is magically going to shrink to the level where we can fund it with solely a consumption tax are living in a dream world.

Great piece, thanks for posting.

 

[2&2 Slider To Leyritz]

I have posted this before. This is a good read on why a consumption tax won't work and why the VAT is the preferred course for a transaction-based tax regime.

http://taxprof.typepad.com/taxprof_blog/files/bartlett_fair_tax.pdf

Any consumption tax would be in addition to a income tax. The people who think that government is magically going to shrink to the level where we can fund it with solely a consumption tax are living in a dream world.

The guy's main point is that we can't adopt a consumption tax because we can't trust Congress to implement it as fairly designed. That is more a statement about Congress than it is about the proposed tax system.

His other primary point is that the transition phase would be too burdensome, so we shouldn't do it at all. I guess someone should have told that to Obamacare supporters.

Some of his more minor points have some merrit, but are just that - minor points that go nowhere insofar as establishing that the proposal is not exponentially better than the clusterfuck of preferential treatment and obscene complexity that we currently have in place. He points to potential implementation and compliance problems as reasons not to do it, while completely ignoring the implementation and compliance shitshow that we already have.

The question is not whether it is a perfect solution; the question is whether or not it is significantly better than the system we have now.

 

[RJKarl]

It's only better for the upper-middle class and rich. It would devastating to everyone else.

RWers like to talk about cutting back the size of government. OK, how much more unemployment are you willing to create? Remember cutting government like you guys want to do means government employees. it means firing the people who provide the good and services to enable government services to exist. It means means closing thousands of restaurants where these employees eat. It means farmers not selling as much of their food.

But HELL YEAH, let's do it, because it makes a good bumper sticker.

 

[DreamOnDemOn]

When an alcoholic quits drinking before drinking kills him, he often feels bad for some time. But HELL YEAH, he does it because it makes a good bumper sticker.

 

[Deacon923]

The guy's main point is that we can't adopt a consumption tax because we can't trust Congress to implement it as fairly designed. That is more a statement about Congress than it is about the proposed tax system.

His other primary point is that the transition phase would be too burdensome, so we shouldn't do it at all. I guess someone should have told that to Obamacare supporters.

Some of his more minor points have some merrit, but are just that - minor points that go nowhere insofar as establishing that the proposal is not exponentially better than the clusterfuck of preferential treatment and obscene complexity that we currently have in place. He points to potential implementation and compliance problems as reasons not to do it, while completely ignoring the implementation and compliance shitshow that we already have.

The question is not whether it is a perfect solution; the question is whether or not it is significantly better than the system we have now.

i thought the section on the necessity of massive wage deflation to make the whole thing work was pretty compelling.

Anyway I'm not suggesting a FairTax, I'm suggesting a reform of the tax code to include a VAT, while simultaneously lowering income tax rates and simplifying income tax rules.

 

[RJKarl]

A VAT is regressive. It harms those at the bottom and in the middle.

There's something else that's very different in the US versus countries with VATs. Few, if any, of those countries have state/local sales taxes on top of the VAT like we do. To many in the US a 5% is basically a 10-12% VAT.

 

[2&2 Slider To Leyritz]

i thought the section on the necessity of massive wage deflation to make the whole thing work was pretty compelling.

Anyway I'm not suggesting a FairTax, I'm suggesting a reform of the tax code to include a VAT, while simultaneously lowering income tax rates and simplifying income tax rules.

The wage deflation is absolutely a necessity to make it work, that is well established. His point is that wage deflation won't happen because it didn't happen during the Depression when, in hindsight, wage deflation would have ended the Depression. However there are two big holes in that argument. The main one is that the Depression was a natural, market-driven event similar to our latest recession, wherein nobody really knows the depths and the end while in it. In the instance of a tax system overhaul, it is an imposed/controlled event where the effects could be clearly broadcast before and during the change. If the populace knows that gross wages are supposed to be decreased to make the system work, but that decrease results in more purchasing power, then I think the process would speed up because employers could do it and simply blame the government for doing what they are told (similar to dropping health coverage for Obamacare). It is tough to tell somone in the middle of a natural depression that they need to cut their wage; it is easier to tell them ahead of time that we are changing the tax system which requires everyone's wage to drop in terms of raw numbers, but your purchasing power will increase. The second hole is that unions, arguably, have less power now than they did then. So, except in certain obvious sectors which are already a disaster, you wouldn't have unions fucking it up as much as they otherwise would.

 

[Deacon923]

A VAT is regressive. It harms those at the bottom and in the middle.

There's something else that's very different in the US versus countries with VATs. Few, if any, of those countries have state/local sales taxes on top of the VAT like we do. To many in the US a 5% is basically a 10-12% VAT.

the whole point, RJ, is that the tax systems in European countries are, in fact, regressive. More regressive than the US. However, their spending policies are very progressive and provide a lot of support to the poor. the overall net impact is significantly more wealth transfer from the rich to the poor than in the US.

 

[sailordeac]

more production and less consumption would be good,

right now we are exporting jobs and importing products,

how long do we want to continue this?

 

[DeacinBama]

the whole point, RJ, is that the tax systems in European countries are, in fact, regressive. More regressive than the US. However, their spending policies are very progressive and provide a lot of support to the poor. the overall net impact is significantly more wealth transfer from the rich to the poor than in the US.

 

[RJKarl]

the whole point, RJ, is that the tax systems in European countries are, in fact, regressive. More regressive than the US. However, their spending policies are very progressive and provide a lot of support to the poor. the overall net impact is significantly more wealth transfer from the rich to the poor than in the US.

The problem is in Europe they use the money for a much broader safety net. The concept of cutting food stamps or not extending unemployment benefits would cause national riots in Europe. It's totally unthinkable.

 

[olddke]

I am opposed consumption taxes as they are regressive and massively favor the ultra wealthy. I think that the income tax is workable but we need to make some changes. I think we should simply tax all capital gains and dividend income as regular income to boost tax revenues. I also think that their could be additional higher tax rates that impact only the wealthiest people. Having said that, I feel that any increase in tax revenues should also be paired with equal sized cuts in government spending.

 

[bullets]

In the US, our rich just don't like paying taxes and have a distaste for the poor.

you must not have met any rich people from any other part of the world if this is your conclusion

 

[PhDeac]

Sorry, I haven't met that many. Not sure what that has to do about a statement about Americans.