Tax Reform Thread

[KrazyHorse]

Given your ignorance I find it incredible that you feel qualified to pass judgment on whether my confidence is misplaced.

[KrazyHorse]

That's a good point, kh.

[notyoueither]

Given your ignorance I find it incredible that you feel qualified to pass judgment on whether my confidence is misplaced.

Can you explain then how a VAT and an income tax would have the same effect?

[Ben Kenobi]

Unemployment in Canada is higher now than before the GST was reduced from 7% to 5%.

True, but the rise has been much lower here than in the US, which is unusual. Usually it's the opposite.

Can you explain how our unemployment rate went up relative to that in the US after replacing a hidden tax of ~12% which was levied on exports with an open tax of 7% to which exports are immune?

I'd guess our debt issues and government cutbacks.

The cash has to come from somewhere, Ben. Can you explain how a higher income tax would be preferable to a lower income tax with a VAT?

No, the cash doesn't have to come from somewhere. Lowering taxes lets people keep their own money.

VAT hits everything down the supply chain. It also spreads out the tax base as has been remarked. So if your goal is to keep the costs of goods and services down, then it makes sense to raise the income tax.

It makes more sense to replace the income tax entirely with a VAT.

[notyoueither]

Can you explain how our unemployment rate went up relative to that in the US after replacing a hidden tax of ~12% which was levied on exports with an open tax of 7% to which exports are immune?

I'd guess our debt issues and government cutbacks.

So then, it is not the GST that resulted in our unemployment rate increasing faster than that in the US.

No, the cash doesn't have to come from somewhere. Lowering taxes lets people keep their own money.

Well yes, actually, it does have to come from somewhere, Ben, otherwise you run into debt or government cutback issues that you alluded to earlier as being the causes of Canada's balooning unemployment rate.

VAT hits everything down the supply chain.

One more time, no it doesn't. A VAT of 5% will extract exactly 5% from the consumer no matter how many hands it passes through. People up the supply chain or down have no opinion of it as they are simply collecting a fee for the government and deducting fees paid to suppliers before submitting the balance to Uncle Brian/Jean/Paul/Steve.

It also spreads out the tax base as has been remarked. So if your goal is to keep the costs of goods and services down, then it makes sense to raise the income tax.

Why should we want to keep the cost of imported goods down at the expense of less income for Canadians to save, invest, and spend?

It makes more sense to replace the income tax entirely with a VAT.

Not really, because then you run into problems with wages earned being sent abroad with little benefit to the jurisdiuction in which they are earned, or capital being diverted into VAT exempt areas like residential property and stock markets.

Are you fond of Phillipinos and bubbles?

[Ben Kenobi]

So then, it is not the GST that resulted in our unemployment rate increasing faster than that in the US.

Hmm?

Why don't we abolish it altogether and see how things go? You're comparing Canada under a VAT vs Canada under a lower VAT, not Canada under a VAT and the USA without a VAT.

Yes, in the short term unemployment increased, but in the long term, the decrease in the VAT lowered our unemployment.

Well yes, actually, it does have to come from somewhere, Ben, otherwise you run into debt or government cutback issues that you alluded to earlier as being the causes of Canada's balooning unemployment rate.

Government cutbacks in the face of tax cuts is a short term increase in unemployment. Long term, the tax cuts will take effect and employment will rise. You also have to take into regard those who begin looking for work again.

One more time, no it doesn't. A VAT of 5% will extract exactly 5% from the consumer no matter how many hands it passes through.

No, it will collect 5 percent at every step of the process. This is the main reason why identical goods here in Canada cost so much more than in the USA.

People up the supply chain or down have no opinion of it as they are simply collecting a fee for the government and deducting fees paid to suppliers before submitting the balance to Uncle Brian/Jean/Paul/Steve.

And this is why I am saying that each step the VAT is passed onto the consumer. You think that the suppliers are going to take a hit? No.

Why should we want to keep the cost of imported goods down at the expense of less income for Canadians to save, invest, and spend?

A good question. Personally, I'd rather see the VAT stay and income tax go. This way people only pay on what they purchase, not on what they earn.

Not really, because then you run into problems with wages earned being sent abroad with little benefit to the jurisdiuction in which they are earned, or capital being diverted into VAT exempt areas like residential property and stock markets.

This is pretty much what people do now to protect their income. TX has no income tax and does quite well. Their workers have far more take home pay, and their pay goes further because the costs of goods and services are quite low.

TX is also one of the few places that didn't experience a bubble in this recent downturn. Personally, seeing the success in TX tells me that it can be done, and I think it would be very helpful for Canadians to drop the income tax altogether.

[notyoueither]

No, it will collect 5 percent at every step of the process. This is the main reason why identical goods here in Canada cost so much more than in the USA.

No, Ben, that is not how it works.

Bob makes widgets and sells one to Joe for $20. Bob collects $1 GST and sends $1 to the government.

Joe sells the widget to Steve for $40. Joe collects $2 GST, but deducts the $1 paid to Bob and sends only $1 dollar to the government. Total cost of widget, $40. Total dollars to the government, $2. 5%

Steve sells the widget to Sally to fix her car for $80. Steve collects $4 GST, but deducts the $2 paid to Joe and sends just $2 to the government. Total cost of widget, $80. Total dollars to the government, $4. 5%

Sally is a consumer. She is using the widget and cannot claim GST back from the government. If Sally were smart, she would sell the widget to Ben for $160 and collect $15 GST (of which she would only declare $8) because Ben expects the GST system to work this way.

[KrazyHorse]

Can you explain then how a VAT and an income tax would have the same effect?

You want me to explain why a tax on suppliers and a tax on consumers are equivalent? Go read an intro econ textbook, you twit.

[KrazyHorse]

And yes, nye is at least correct on the mechanics, though he has no understanding of the incidence.

Ben, VAT stands for value ADDED tax.

[KrazyHorse]

dp

[Jon Miller]

Shouldn't we generally tax suppliers? As there are a lot fewer suppliers than consumers wouldn't the tax enforcement and application be easier?

JM

[KrazyHorse]

Jon, although the GST is framed as a consumption tax, at every step in the chain the seller is responsible for collecting it...

[Jon Miller]

Yeah, I know that. I was speaking more in general rather than on the specifics of the tax being discussed.

JM

[Hauldren Collider]

KH, my understanding is that a tax deduction for employer provided healthcare just inflates the value of healthcare, is that right? Same for home mortgages.

[Jon Miller]

It definitely favors the employer providing healthcare rather than the employee purchasing it. And is probably a major reason why our healthcare system has become such an expensive mess.

JM