The Off Topic Topic

[Admiral Yi]

Yeah I was going to say something like that.

I mean I'm not an economist (although I took like Econ 101 in university) but leaving money out of circulation doesn't  "donate" it to society, it's just keeping it out of circulation and worthless.

It's donating the work you performed to earn the money.

[HVC]

I wonder if VAT could be fixed to be viable as a stand alone.
Like super high rates on luxuries.
Would it be easier or harder to dodge it more spread out

The more exceptions you bring in the harder it is to administer.

Canada's GST (which is a VAT) makes a few exemptions for things like "groceries" or prescription drugs.  Which can lead to some argument and debates (if you buy 1 donut you pay GST, but not if you buy 6 or more because it's then classified as a grocery item).  But the biggest headache is that that the GST is only supposed to be charged to the "final consumer".  So if you have a mining company selling iron ore to a smelter, the smelter selling iron ingots to a steal mill, the steel mill selling steel to an auto parts manufacturer, then the auto parts manufacturer sells the auto part to a car company, then the car company sells to you - GST gets charged each step along the way, but then gets rebated back except for the sale to you.  You can imagine how difficult that can be to supervise and administer.

The GST thing from a companies perspective is relatively easy. You collect more GST then you pay in a month (or quarter for a small company) then you remit to the government, if you collect  less the government send you a check. There even a super easy web portal to file, and you can submit directly from a bank  Unless I'm missing something in your post.

[DGuller]

You don't "withdraw" goods or services, but don't you also keep cash out of the general market. And Doesn't seem like that would be good.

Doesn't Germany do some heavy progressive corporate tax to force companies into using cash for r&d and expansion rather then hoarding it. Though I might be misrememebering.

I'm not sure why it's a good thing for a government to make well-intentioned suggestions to individuals or corporations as to what they should do with their money.  Both R&D and expansion are not necessary a good use of money, both are a type of investment.  Investment can be smart or it can be dumb.  Doing nothing with money is better than actively lighting it on fire.

[HVC]

You don't "withdraw" goods or services, but don't you also keep cash out of the general market. And Doesn't seem like that would be good.

Doesn't Germany do some heavy progressive corporate tax to force companies into using cash for r&d and expansion rather then hoarding it. Though I might be misrememebering.

I'm not sure why it's a good thing for a government to make well-intentioned suggestions to individuals or corporations as to what they should do with their money.  Both R&D and expansion are not necessary a good use of money, both are a type of investment.  Investment can be smart or it can be dumb.  Doing nothing with money is better than actively lighting it on fire.

Those were just examples, they don't have to do R&d or investment. Can do a myriad of things. More examples are bonuses, or dividends, hell even donations (double tax boon ). The intent is to keep capital flowing.


Again, if I recall correctly. Some of our Germans might know.

*edit* it disincentives companies like apple from keeping 160 billion in reserves. That helps no one and nothing. It's just hoarding.

[Admiral Yi]

Those were just examples, they don't have to do R&d or investment. Can do a myriad of things. More examples are bonuses, or dividends, hell even donations (double tax boon ). The intent is to keep capital flowing.


Again, if I recall correctly. Some of our Germans might know.

I don't see a logical rationale for this either, when central banks with fiat currency can expand or shrink money supply at will.

[Barrister]

I wonder if VAT could be fixed to be viable as a stand alone.
Like super high rates on luxuries.
Would it be easier or harder to dodge it more spread out

The more exceptions you bring in the harder it is to administer.

Canada's GST (which is a VAT) makes a few exemptions for things like "groceries" or prescription drugs.  Which can lead to some argument and debates (if you buy 1 donut you pay GST, but not if you buy 6 or more because it's then classified as a grocery item).  But the biggest headache is that that the GST is only supposed to be charged to the "final consumer".  So if you have a mining company selling iron ore to a smelter, the smelter selling iron ingots to a steal mill, the steel mill selling steel to an auto parts manufacturer, then the auto parts manufacturer sells the auto part to a car company, then the car company sells to you - GST gets charged each step along the way, but then gets rebated back except for the sale to you.  You can imagine how difficult that can be to supervise and administer.

The GST thing from a companies perspective is relatively easy. You collect more GST then you pay in a month (or quarter for a small company) then you remit to the government, if you collect  less the government send you a check. There even a super easy web portal to file, and you can submit directly from a bank  Unless I'm missing something in your post.

Sure the actual payment is easy.

But trying to determine when is a sale to the final consumer vs when isn't it.

[DGuller]

Those were just examples, they don't have to do R&d or investment. Can do a myriad of things. More examples are bonuses, or dividends, hell even donations (double tax boon ). The intent is to keep capital flowing.


Again, if I recall correctly. Some of our Germans might know.

*edit* it disincentives companies like apple from keeping 160 billion in reserves. That helps no one and nothing. It's just hoarding.

I'm still not sure what the problem is.  I can see a problem with hoarding food or drinkable water.  If you're not using it and not letting anyone else use it, you're just keeping it stockpiled away because it gives you a boner, it's just an asshole behavior.  What is the problem with hoarding pieces of paper that have no value of their own?

Who's the bigger asshole?  The guy who gets $100 billion and lives like a miser, hoarding away those $100 billion?  Or a guy who gets $100 billion, takes champagne baths every day, lights a fireplace with a Picasso painting, and puts 1000 pounds of food on the table every night just to throw away 99.9% of it.  The first did whatever he did to earn that money and is not asking for anything in return, even though he has the right.  The second guy is wasting things that actually matter, by spending his money. 

I think people sometimes get too abstract when thinking about economics, and forget that spending and consuming sometimes destroys a limited resource.  We have only so much oil on our planet, for example.  The oil that the rich guy burns in his private jet to spend his money is the oil that other people can't burn.  Is it really a bad thing that rich people will choose to get even more of that paper money rather than cash in and drive up the price of limited useful goods and services for everyone else?  It's only going to be a bad thing if they're investing now just to have many more useful resources to senselessly waste later.

[HVC]

But oil burning Asshole isn't *just* burning oil, he's paying a company, a company to extract the oil who then pays employees, or invests in new infrastructure, or whose ceo goes out and buys hookers and blow. By hoarding the cash and not burning the oil there are less oil company employees, engineers for infrastructure, and hookers. Wont someone please think of the hookers.?

[Barrister]

Those were just examples, they don't have to do R&d or investment. Can do a myriad of things. More examples are bonuses, or dividends, hell even donations (double tax boon ). The intent is to keep capital flowing.


Again, if I recall correctly. Some of our Germans might know.

*edit* it disincentives companies like apple from keeping 160 billion in reserves. That helps no one and nothing. It's just hoarding.

I'm still not sure what the problem is.  I can see a problem with hoarding food or drinkable water.  If you're not using it and not letting anyone else use it, you're just keeping it stockpiled away because it gives you a boner, it's just an asshole behavior.  What is the problem with hoarding pieces of paper that have no value of their own?

There's a concept called "the velocity of money".  It's the number of exchanges of a given unit of currency in a given time period.

If you spend $100 to buy a buy a book, the bookstore uses the $100 to pay the bookseller, the bookseller used the $100 to pay  his taxes, the government uses the $100 to buy it's poor employees some pens, the pen store used the $100... You get the picture.  That's a high velocity of money.  Each person or entity gets the benefit of the $100.

The thing is - even if you spend your $100 to buy a book, then you light the book on fire, the money still goes back into circulation, and still increase the velocity.

If you jus sit on the money, the velocity becomes zero.  Nobody (including yourself, as you point it out) gets the benefit of that money.


Edit:

IIRC, this is also one of the reasons why low interest rates help promote growth / are inflationary, while high interest rates slow growth.  As it becomes more lucrative (through high interest rates) to just sit on money that then helps slow the velocity.  But if there's very little benefit to just putting money in the bank there's more incentive to spend it.

[HVC]

I wonder if VAT could be fixed to be viable as a stand alone.
Like super high rates on luxuries.
Would it be easier or harder to dodge it more spread out

The more exceptions you bring in the harder it is to administer.

Canada's GST (which is a VAT) makes a few exemptions for things like "groceries" or prescription drugs.  Which can lead to some argument and debates (if you buy 1 donut you pay GST, but not if you buy 6 or more because it's then classified as a grocery item).  But the biggest headache is that that the GST is only supposed to be charged to the "final consumer".  So if you have a mining company selling iron ore to a smelter, the smelter selling iron ingots to a steal mill, the steel mill selling steel to an auto parts manufacturer, then the auto parts manufacturer sells the auto part to a car company, then the car company sells to you - GST gets charged each step along the way, but then gets rebated back except for the sale to you.  You can imagine how difficult that can be to supervise and administer.

The GST thing from a companies perspective is relatively easy. You collect more GST then you pay in a month (or quarter for a small company) then you remit to the government, if you collect  less the government send you a check. There even a super easy web portal to file, and you can submit directly from a bank  Unless I'm missing something in your post.

Sure the actual payment is easy.

But trying to determine when is a sale to the final consumer vs when isn't it.

Guess it's been easier on my end because the customers of Companies I've worked with are always end users. I would assume most play it safe and charge everyone GST. Last company I worked got audited regularly because of a lot of our customers were American and our vendors Canadian. We got a lot of GST refunds because of million dollar projects. CRA always got suspicious

[DGuller]

Those were just examples, they don't have to do R&d or investment. Can do a myriad of things. More examples are bonuses, or dividends, hell even donations (double tax boon ). The intent is to keep capital flowing.


Again, if I recall correctly. Some of our Germans might know.

*edit* it disincentives companies like apple from keeping 160 billion in reserves. That helps no one and nothing. It's just hoarding.

I'm still not sure what the problem is.  I can see a problem with hoarding food or drinkable water.  If you're not using it and not letting anyone else use it, you're just keeping it stockpiled away because it gives you a boner, it's just an asshole behavior.  What is the problem with hoarding pieces of paper that have no value of their own?

There's a concept called "the velocity of money".  It's the number of exchanges of a given unit of currency in a given time period.

If you spend $100 to buy a buy a book, the bookstore uses the $100 to pay the bookseller, the bookseller used the $100 to pay  his taxes, the government uses the $100 to buy it's poor employees some pens, the pen store used the $100... You get the picture.  That's a high velocity of money.  Each person or entity gets the benefit of the $100.

The thing is - even if you spend your $100 to buy a book, then you light the book on fire, the money still goes back into circulation, and still increase the velocity.

If you jus sit on the money, the velocity becomes zero.  Nobody (including yourself, as you point it out) gets the benefit of that money.


Edit:

IIRC, this is also one of the reasons why low interest rates help promote growth / are inflationary, while high interest rates slow growth.  As it becomes more lucrative (through high interest rates) to just sit on money that then helps slow the velocity.  But if there's very little benefit to just putting money in the bank there's more incentive to spend it.

The problem with such velocity arguments is that they sound like a parable of broken window reworded.  I don't see how it's self-evident that increasing velocity of money is beneficial in and of itself, even if it comes at a cost of destroying something valuable.  It may be that in a very depressed economy where a lot of people can contribute a useful service but don't, such a wasteful priming of the pump may be beneficial overall:  you waste a book, but you create a bunch of services from underemployed people that would never have otherwise been created.  However, I don't see how it applies to normal economic conditions.

[Admiral Yi]

The problem with such velocity arguments is that they sound like a parable of broken window reworded.  I don't see how it's self-evident that increasing velocity of money is beneficial in and of itself, even if it comes at a cost of destroying something valuable.  It may be that in a very depressed economy where a lot of people can contribute a useful service but don't, such a wasteful priming of the pump may be beneficial overall:  you waste a book, but you create a bunch of services from underemployed people that would never have otherwise been created.  However, I don't see how it applies to normal economic conditions.

It's the same argument as money supply too low leads to deflation and economic contraction.

But like I said earlier, central banks can always change money supply.

[Barrister]

The problem with such velocity arguments is that they sound like a parable of broken window reworded.  I don't see how it's self-evident that increasing velocity of money is beneficial in and of itself, even if it comes at a cost of destroying something valuable.  It may be that in a very depressed economy where a lot of people can contribute a useful service but don't, such a wasteful priming of the pump may be beneficial overall:  you waste a book, but you create a bunch of services from underemployed people that would never have otherwise been created.  However, I don't see how it applies to normal economic conditions.

I've heard it more in terms of "digging a hole" - that in order to "stimulate" the economy the government could pay one group of workers to dig a big hole, then pay another group of workers to fill in the hole.  Nothing accomplished - but look at all the fiscal stimulus!

The thing is - it's not entirely wrong.  Paying those workers to dig a big hole is a form of stimulus - those workers have more money in their pocket.  So yeah, if all you're going to do with that money is hide it under your mattress for 30 years as a society we would be better off if you paid someone to dig a big hole then fill it in.

But yes - it would be better if you spent that money on something more efficient - something with more productivity.

Instead of a big hole, if you pay those workers to dig a well.  The workers now still have the money, but you have a well which allows you to get water for your crops.  You've now increased overall productivity as well.

[DGuller]

The problem with such velocity arguments is that they sound like a parable of broken window reworded.  I don't see how it's self-evident that increasing velocity of money is beneficial in and of itself, even if it comes at a cost of destroying something valuable.  It may be that in a very depressed economy where a lot of people can contribute a useful service but don't, such a wasteful priming of the pump may be beneficial overall:  you waste a book, but you create a bunch of services from underemployed people that would never have otherwise been created.  However, I don't see how it applies to normal economic conditions.

I've heard it more in terms of "digging a hole" - that in order to "stimulate" the economy the government could pay one group of workers to dig a big hole, then pay another group of workers to fill in the hole.  Nothing accomplished - but look at all the fiscal stimulus!

The thing is - it's not entirely wrong.  Paying those workers to dig a big hole is a form of stimulus - those workers have more money in their pocket.  So yeah, if all you're going to do with that money is hide it under your mattress for 30 years as a society we would be better off if you paid someone to dig a big hole then fill it in.

But yes - it would be better if you spent that money on something more efficient - something with more productivity.

Instead of a big hole, if you pay those workers to dig a well.  The workers now still have the money, but you have a well which allows you to get water for your crops.  You've now increased overall productivity as well.

The implicit assumption is that these workers have nothing else to do, and would be sitting idle if not for your various potential hole digging jobs.  It may be true during a depression, which is already highly wasteful situation, and thus even paradoxical wasteful solutions can still improve on it, but it's not true in general.  In general you wouldn't hire them to dig anything, unless you actually need that hole badly enough to pay the market price for it.

[Jacob]

There is progressivity when you add UBI.  The aggregate tax on your total spending will start at negative infinity with zero spending, and cap out at the VAT rate as your spending approaches infinity.

That's true if you define "progressivity" as "sort of vaguely lefty-ish and nice to poor or working people." In that case adding UBI is progressive because some poor people get money they presumably didn't have before and are therefore better off.

However, when it comes to taxation a progressive tax - as I understand it - by definition means you are taxed progressively more the higher your income (and potentially, you are taxed more, the higher the wealth). Your proposal is the antithesis of progressive in this case, as it is explicitly designed to eliminate progressive taxation.

Also - it seems to me that the scheme is completely impractical unless you institute a global authority to collect this VAT. If I make my money here (whereever "here" is) and spend my money in Dubai and Thailand then there is no tax revenue for here. That seems very easy to exploit.

On a practical level it would also significantly encourage an underground economy (with the attendant corruption and organized crime) to avoid the VAT. Alternately, you'd need to institute a massive bureaucracy to track and tax every economical exchange - because typically people spend money in many more places than they earn them.

It's potentially an interesting thought experiment, but in the real world it's going to be disastrous nonsense.