Tax Reform Thread

[Drake Tungsten]

How far back was that?

Three weeks. Elok was trying to explain to us all how anyone who has accumulated more than a million dollars in wealth is "pathological" because there's simply no acceptable use for that amount of money...

[giblets]

They pay an equal percentage of their consumption. Savings are deferred consumption. Eventually the rich person or their descendants will pay the tax.

Currently, there is a huge tax disadvantage to saving relative to consumption. Income which is saved (outside a retirement account) is taxed at regular rates, and then returns on these savings are also taxed (at various rates, depending on the type of returns, yet another unnecessary distortion). Let M be a given individual's marginal tax rate on earned income. This means that an individual has to choose, at the margin, between consuming (1-M) now and consuming some value in the future whose NPV is LESS than (1-M) (by an amount equal to the NPV of the taxes he pays on the appreciation of his savings).

Any tax on capital gains or interest distorts at the margin of intertemporal choice.

That's pretty convincing. In light of this I can agree that rebates are a better way to make the tax system progressive.

[KrazyHorse]

I am entirely for transfers of wealth. There is an efficiency cost to any such transfer, but some transfers are more efficient than others.

[notyoueither]

The only difference between a flat tax and the VAT is in where it's collected and possibly the treatment of already-existent capital (the VAT expropriates those who already have large sums of money relative to the flat tax). The incentive effects are identical.

Jesus ****ing christ.

I don't think you have this right.

[giblets]

So how does a VAT affect exports, compared to a sales tax? I'm going to borrow the example from the VAT wikipedia article-

1. The manufacturer pays $1.10 ($1 + $1x10%) for the raw materials, and the seller of the raw materials pays the government $0.10.
2. The manufacturer charges the retailer $1.32 ($1.20 + $1.20x10%) and pays the government $0.02 ($0.12 minus $0.10), leaving the same gross margin of $0.20.
3. The retailer charges the consumer $1.65 ($1.50 + $1.50x10%) and pays the government $0.03 ($0.15 minus $0.12), leaving the gross margin of $0.30 (1.65-1.32-.03)

But let's say that the manufacturer exports the product instead of selling it to a domestic retailer. Under a sales tax they would have paid $1.00 for the raw materials but under VAT they paid $1.10, right? So do exports become more expensive, leading to a reduction in exports? Or am I misinterpreting something?

[notyoueither]

So how does a VAT affect exports, compared to a sales tax? I'm going to borrow the example from the VAT wikipedia article-


But let's say that the manufacturer exports the product instead of selling it to a domestic retailer. Under a sales tax they would have paid $1.00 for the raw materials but under VAT they paid $1.10, right? So do exports become more expensive, leading to a reduction in exports? Or am I misinterpreting something?

Under the GST in Canada (a VAT) exports are not taxable. The manufacturer would get a refund of all taxes paid on inputs for the materials exported when it files its GST return.

[giblets]

Under the GST in Canada (a VAT) exports are not taxable. The manufacturer would get a refund of all taxes paid on inputs for the materials exported when it files its GST return.

Okay, thanks.

[notyoueither]

I should have said exporter. 'The exporter would get a refund...'

You do not need to be a manufacturer to claim refunds on inputs. Pretty well all businesses are part of the GST system. Importers/exporters would collect GST on imports that are sold on into Canada and claim refunds on products purchased domestically and exported. The difference between GST collected on sales and GST paid on inputs is paid to or refunded from the feds.

This is where Ben is mistaken. The GST has zero effect on businesses in the chain of transactions from originators to consumers. Anything paid is deducted from what is collected to determine what is remitted, and the business will get a refund if they have significant non-taxable sales.

[Ben Kenobi]

The only difference between a flat tax and the VAT is in where it's collected and possibly the treatment of already-existent capital (the VAT expropriates those who already have large sums of money relative to the flat tax). The incentive effects are identical.

True, but that's not what I'm arguing here. I'm arguing it's better to have just a flat tax, rather than a VAT on top of income tax.

If you want to abolish income tax altogether and replace it with a VAT, I have absolutely zero problem. I just don't want to see the US do what we did here, and have an income tax with a VAT on top of it. That is a jobs killer.

[notyoueither]

Ben, there was a federal sales tax for 100+ years before the GST. IIRC, it was the first federal tax.

[SlowwHand]

That's not the point. The point is, put in a flat tax. Now. Not in some retrospect move.

[notyoueither]

Ben has been saying that the GST that came into effect in Canada ~1990 has been a job killer.

That is misleading.

The GST replaced an older federal tax that was levied on manufactured goods, including exports, and was not levied on imports. It was hidden as it was charged by the manufacturer to wholesalers and retailers, which is why just about nobody knows it even existed. That tax was then marked up in prices to consumers. That tax was indeed a job killer. The GST is not.

[SlowwHand]

OK, I'm just saying now, in the USA. Y'all go back to your arguing.

[notyoueither]

For the USA, flat tax or progressive...

If you need more money (which you do) a VAT would lessen the need for higher income taxes.

You'll have to pay the Chinese bond holders one way or the other.

[Ben Kenobi]

The GST replaced an older federal tax that was levied on manufactured goods, including exports, and was not levied on imports. It was hidden as it was charged by the manufacturer to wholesalers and retailers, which is why just about nobody knows it even existed. That tax was then marked up in prices to consumers. That tax was indeed a job killer. The GST is not.

I don't think it's a coincidence that the recent reduction in the GST has decreased unemployment here. And unemployment in the GST era has been consistantly higher here than in the USA.

GST vs no tax is the proper comparison, not GST to a VAT. GST is a job killer when compared to no tax, as is the situation in the US.