The Off Topic Topic

[Jacob]

Stripping away complexities that obfuscate clear reasoning rather than aid it is what I always try to do, hopefully successfully at times.  That's not to say that there is anything wrong with writing one-liners that add nothing but make you sound sophisticated, but I personally enjoy reasoning things out in detail much more.

Fair retort

I'll try to offer a few more lines, hopefully with a bit more substance:

As far as underground economy, my understanding is the difference between VAT and a sales tax is that VAT creates incentives to report everything, whereas the sales tax creates incentives to not report.

With VAT the tax is collected in more stages than a sales tax. So, from the government's perspective there is a requirement to collect and report VAT on very transaction. I'm not sure why that incentive would be any stronger than the incentive to collect and report a sales tax. A quick google didn't help either. What's your line of reasoning here?

I already addressed the progressivity argument.  The combination of VAT+UBI will result in an increasing rate of total tax as percentage of consumption the higher your consumption goes, so it is progressive with respect to your total spending.  People spending more will pay a higher aggregate rate, there is nothing vague about it.

Typically low income people spend more of their money on consumption than high income or wealthy people, so proportionally they'll bear a much higher tax burden.

Your argument for "progressivity" seems like you're playing definitional games. "Progressive taxation" definitionally means paying a higher rate of income tax the more money you make, and you've decided you're going to redefine the term and apply it to consumption. Sales taxes, on the other hand, are regressive taxation because they impact lower income people proportionally more.

Typically the reasoning for progressive taxation are implemented in an attempt to lower wealth inequality, which is more or less borne out by observation. Conversely, arguments to get rid of progressive taxation and fund the government via sales taxes or VAT are typically made by political parties looking to increase wealth inequality (by making it easier for those with money to accumulate more of it faster).

The first hit on google to the question "is a VAT progressive proportional or regressive" gives this answer:

A value-added tax (VAT) is a tax on consumption. Poorer households spend a larger proportion of their income. A VAT is therefore regressive if it is measured relative to current income and if it is introduced without other policy adjustments.

You've offered an additional policy adjustment, the introduction of a UBI. Is it your expectation that your proposal of "no income tax + UBI" will result in growing or reducing wealth inequality compared to what we have now?

...

Presumably investment income is not taxed, it being income. I'd expect that to result in an acceleration of wealth inequality, as money would accumulate money even more efficiently.

...

You also didn't address what I thought was a pretty significant weak point I pointed out earlier - unless you assume some sort of universal taxation and collection mechanism (unrealistic) - having no taxation on income gained in Country A, but low or no taxation on consumption in Country B would likely result in massive losses of tax revenues in both countries as sophisticated actors (i.e. those with lots of money) would move their income and spending to attractive jurisdictions.

[Sheilbh]

With VAT the tax is collected in more stages than a sales tax. So, from the government's perspective there is a requirement to collect and report VAT on very transaction. I'm not sure why that incentive would be any stronger than the incentive to collect and report a sales tax. A quick google didn't help either. What's your line of reasoning here?

VAT is along the supply chain as value is added, not just by the end retailer, and as you go along the chain businesses are normally able to deduct their VAT costs from the VAT they charge. So there's an incentive for businesses to collect, monitor and report VAT on both sides.

Obviously that requires a bit of administration by business so there's probably an argument that you're just shifting the administrative costs from the state to the private sector - perhaps especially as there are more exemptions or different VAT rates for different products. Like in the UK the very famous long-running tax dispute over whether Jaffa Cakes are cakes (in our tax system, a staple food so zero rate VAT) or biscuits (not a staple food so full VAT)

[Tamas]

I agree with DorseyGuller, VAT and UBI sounds like the way to go in modern society, although VAT exemptions would need another look at I guess.

[crazy canuck]

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.

I already addressed the progressivity argument.  The combination of VAT+UBI will result in an increasing rate of total tax as percentage of consumption the higher your consumption goes, so it is progressive with respect to your total spending.  People spending more will pay a higher aggregate rate, there is nothing vague about it.

As far as underground economy, my understanding is the difference between VAT and a sales tax is that VAT creates incentives to report everything, whereas the sales tax creates incentives to not report.

But that's not addressing the issue at all. Most rich people don't buy things personally, they buy things through their corporations and then use them personally.

The people who consume the most personally are the middle class and the poor.

And VAT tax schemes have all kinds of loopholes that corporations can use to avoid paying the tax directly. They just pass it on to their consumers, which again amplifies the fact that the tax is in no way progressive.

[Jacob]

VAT is along the supply chain as value is added, not just by the end retailer, and as you go along the chain businesses are normally able to deduct their VAT costs from the VAT they charge. So there's an incentive for businesses to collect, monitor and report VAT on both sides.

Obviously that requires a bit of administration by business so there's probably an argument that you're just shifting the administrative costs from the state to the private sector - perhaps especially as there are more exemptions or different VAT rates for different products. Like in the UK the very famous long-running tax dispute over whether Jaffa Cakes are cakes (in our tax system, a staple food so zero rate VAT) or biscuits (not a staple food so full VAT)

I see, thanks.

So basically there's an incentive to collect the tax because one party can record their VAT costs as an expense and thus deduct it from their income tax liability?

Doesn't that incentive disappear in the proposed system since there is no income tax liability to deduct the expense from?

Taxes are added to your expenses, so presumably there's an incentive to keep your expenses off the books if you can, or to shuffle them into categories with lower VAT (if the VAT is differentiated), or - as above - to shuffle them into lower VAT jurisdictions if possible.

This - along with Tamas' comment - raises another question: are there exemptions and how are they applied? Will there be exemptions for "common goods" for "regular people"? Will there be exemptions for intermediate steps along complex production chains (if they aren't in-housed)? The answer to those questions will have significant implications both for revenue generation and economic activity.

[Razgovory]

Oh God, this is so boring.

[Jacob]

Oh God, this is so boring.

Come on, at least try for a one-liner that adds nothing but makes you sound sophisticated

[Barrister]

Veering off to an aside, and going back to apple (sorry BB ), the central bank would have to print 166 billions dollars worth of cash to make up for their mattress stash.


*edit* that's 2.5  times Portugal's annual tax revenue as a comparison.

*edit 2* this is kind of an interesting list: Countries Tax Revenue

A: comparing income to assets is always a mistake.

B: in this case Apple hasn't literally stuffed it's cash in a mattress.  I have no doubt it's invested in all kinds of different things.  Perhaps Apple would be better off spending it's cash in a different way, but it's cash is circulating in the economy - unlike sitting under a mattress.

[Sheilbh]

Oh God, this is so boring.

Strap in Raz. I have more VAT FACTS!

So basically there's an incentive to collect the tax because one party can record their VAT costs as an expense and thus deduct it from their income tax liability?

No so I think they can claim it against their VAT liability - so basically everyone down the chain has an incentive to collect and pay until it reaches the final consumer. That's the big attraction from an incentive/tax collection perspective.

This - along with Tamas' comment - raises another question: are there exemptions and how are they applied? Will there be exemptions for "common goods" for "regular people"? Will there be exemptions for intermediate steps along complex production chains (if they aren't in-housed)? The answer to those questions will have significant implications both for revenue generation and economic activity.

Ish - but I warn I am very much beyond the boundaries of my knowledge here.

So there are VAT exemptions which just means there's no VAT at all. This is often intangibles or where there is limited value add down the chain or simply a public policy reason. So consumer financial services, I think, are VAT exempt, insurance is VAT exempt as is charity fundraising, sports centres, care homes for the elderly etc.

In the UK there are three rates 20%, 5% and 0%. 0% is not an exemption because it is exempt for the end consumer but the inputs are still VAT-able (because there is a value add). The 0% rate includes things like staple foods (including cake, crucially), children's clothes, I think books, magazines, newspapers, a lot of utilites like water - since Brexit (and excluding Northern Ireland) 0% rate also includes lots of environmental things like solar panels for domestic use as well as female sanitary products. At the 5% rate is basically domestic energy costs.

Obviously the more exemptions and zero rated products there are the more complex the system is which rather undermines one of its attractions which is that it's simple to administer. But you can see the sort of things that are covered by a zero rate are basically things that are either "essentials" or something that people should be able to have access to without paying a tax. Not sure if that's common goods for everyday folk but something like it.

[HVC]

Veering off to an aside, and going back to apple (sorry BB ), the central bank would have to print 166 billions dollars worth of cash to make up for their mattress stash.


*edit* that's 2.5  times Portugal's annual tax revenue as a comparison.

*edit 2* this is kind of an interesting list: Countries Tax Revenue

A: comparing income to assets is always a mistake.

B: in this case Apple hasn't literally stuffed it's cash in a mattress.  I have no doubt it's invested in all kinds of different things.  Perhaps Apple would be better off spending it's cash in a different way, but it's cash is circulating in the economy - unlike sitting under a mattress.

True enough. According to their balance sheet as of October 2022 the have "only" 21 billion in cash. So smaller mattress pile than I'm portraying.


*edit* and being in a bank in and of itself also puts in the market, yes.

[Josquius]

Today I learned time immemorial is specifically defined as being before 1189.
Which is surprisingly recent.
And amusing.

[The Minsky Moment]

From the pot on kettle attack news beat:

Former President Trump's attorney Alina Habba went after New York Attorney General Letitia James on Monday, saying she's "just not that bright."

"She's just not that bright. I'm sorry, I have to say it," Habba said. "I've seen their case; I've seen their lawyers. They don't know what they're talking about."

I wonder who is going to explain to this luminary of the bar that her client has already lost the case.

[Admiral Yi]

https://www.youtube.com/watch?v=8lc580lJIfM

I have been getting a lot of these Oktoberfest crotch shot videos on my feed.  God bless different cultural norms.

I would love to know the thoughts of the women on engaging in a public event that exposes their underwear to the public.

[Jacob]

Pretty sure it's some variation of "that's going to be really fun" and - if they do think about it - "it's no big deal if some random sees my underwear in this situation".

[Razgovory]

Oh God, this is so boring.

Come on, at least try for a one-liner that adds nothing but makes you sound sophisticated

I've recently become sane and have no desire to appear sophisticated.