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Comment by danaris | Hacker News Reader

But they won't. Spend it, I mean. At least not on things where VAT is relevant.

Most people, when money comes in, they spend it on things, so it immediately has to also pay VAT. If they're lucky, they may have some savings, but it's going to be on the order of 2-3 months' worth of income.

Rich people make orders of magnitude more money, and mostly need to spend the same order of magnitude to live as the rest of us. The money beyond that, they mostly don't spend on the same kinds of things. After all, what would you do with a million dollars' worth of soap?

There's no VAT on lobbying, on buying a house in the Caymans, on hiring six people to clean the mansion.

VAT, like all consumption taxes that aren't highly targeted, is hugely regressive.

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> But they won't. Spend it, I mean. At least not on things where VAT is relevant.

If we can agree that the VAT is levied because the government has added some value to each product sold (value added tax..) then I don't see why spending money on VAT-exempt items makes VAT a bad tax.

If you spend it on labor, housing, there are taxes associated with that other than VAT. Lobbying and charities might be tax-deductible or exempt, that is another discussion.

I think your point is that regressive taxes are bad, is that a fair analysis? I don't agree with that.

I mean, I believe that regressive taxes are bad.

My point, however, is merely that VAT is a regressive tax.

I agree it is a regressive tax. Re-reading my comment I can understand that it may seem that I don't agree with that. Sorry about that.

However, I fail to see why regressive taxes are bad in general and why VAT is bad in particular.

I was originally interested in the question by someone else before me:

> I'd be interested to hear your reasoning for why you think sales tax is so bad.

Regressive taxes are bad because they place a higher burden on people least able to pay versus those with more income to pay the tax.

> If we can agree that the VAT is levied because the government has added some value to each product sold (value added tax..

What value has the government added to consumer products I purchase in the store, particularly in the USA where tax rates vary from state to state, county to county, or even city to city? There is no national sales tax here, but consumer regulation is still a thing, and factors into the base price of goods.

I’m still genuinely interested in what value you see the government adding, but I think this might be why Americans and Europeans are disagreeing here.

Roads, sidewalks, bridges, public transport, education (+ buildings), public libraries, emergency services, hospitals, ( ... the list goes on) are all heavily subsidized by the government here. You could design taxes such that these are all funded by the users but it is much easier to have a VAT that funds them all (at least partially). It's not like you can point to a piece of plastic on your chair and say the government made it, but the whole chair ending up inside your house was made possible, partially, by the government. I think it's fair to pay a bit for that.

The government adds value to all our lives, not merely to our consumer goods.

So perhaps a more effective and fair means of paying for it is to recognize that those with higher incomes are the most financially able to support the cost, and develop a progressive income tax that ensures that the highest burdens are put on those with the greatest ability to bear them.

> progressive income tax

European countries have this.

Then why do they need this VAT?

Some costs (e.g. waste management) increase with each sold item.

Then charge for waste management as a separate item. Call it a tax or a service charge, or whatever.

Charging people to pick up their trash generally ends in trash getting dumped or disposed of improperly (eg, contamination of the recycling bin).

I still don’t understand why it’s appropriate to tax bananas in order to fund emergency services.

That's fair and you're entitled to that opinion. Maybe you can propose a solution by filling in the blank:

I understand why it’s appropriate to tax [fill in blank] in order to fund emergency services.

Income. Real estate.

People with high income are more able to pay such a tax, if it’s structured progressively. People with real estate holdings benefit most from emergency services.

Well that is an option. Progressive income taxes are a good thing, I think. I also like VAT as a supplementary method.

We disagree, I guess.

Roads, sidewalks, bridges, public transport, education

So why not levy taxes against the land value of those who own the property adjacent to those structures? They are the ones who see the most benefit when the value of their land increases, causing their wealth to increase dramatically. For example, the shop owner derives vastly more benefit from the sidewalk in front of his shop than do the pedestrians who occasionally walk by.

Sales tax is a toll that gets charged to everyone, equally, when the benefits of the spending are distributed unequally.

That isn't why it's called Value Added Tax.

It's called that because the effect of the way the tax is implemented is to tax the _addition_ of value to the product by those being taxed on its way to a consumer.

Suppose I buy a vacuum cleaner from a big store nearby for $100 plus $25 VAT. I don't need to care about this, but presumably the big store bought it from a vacuum cleaner manufacturing company. Maybe they want $50. Two things could happen, the manufacturer could charge $62.50 (adding VAT) which the big store then needs to claim back because they only bought it to then sell it to me - or more likely - the two firms exchange details and both create paperwork showing that the vacuum cleaner cost $50 and no VAT was charged. We can see that either way only $12.50 of the VAT is attributable to the big store, the rest is in some sense someone else's fault, either the manufacturer or their suppliers in turn.

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