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Comment by lclc | Hacker News Reader

Abolish VAT. It's an anti-social tax, targeting the poor and making business for small businesses more bureaucratic and more expensive.

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I’ve never understood why left leaning governments don’t get rid of it. Or why the EU is so pro it.

What's the alternative?

Income tax doesn't work well since the rich can ensure they have low or even zero taxable income.

Wealth tax doesn't work because the rich just move to Switzerland or similar.

At least with VAT, when the rich go buy their fancy goods and have dinners at restaurants (VAT on services here), they pay proportionally more in VAT.

This might be a dumb question, I'm not an economist by any stretch.

> why the EU is so pro it

It's mostly a non issue in european politics tbh, the debate tends to be at the National level on the specific rate. But abolishing it outright is not something that is really discussed

> why left leaning governments don’t get rid of it

Because if you cut taxes you need to also cut benefits?

VAT is easy to apply and makes tax evasion harder. What's there that would make left-leaning legislatures remove it?

Sales tax is a regressive tax which affects the poor more, so operating on pure ideology a left wing government would want to cut sales tax and replace with higher income tax.

However even the left wing EU governments that exist don't have unlimited time and goodwill, so most of them will leave that alone rather than get the bad PR from raising more visible taxes or cutting services to compensate.

Referring to VAT as a less visible tax is ... a take, consumption taxes are around 20% of total tax income in the OECD, you'd have to tax income a lot more to make up for that, it's not really viable. (Income and profit taxes currently make up 33% for comparison)

And the effects on lower incomes gets mitigated by transfers and support programs and that tends to be good enough for left leaning legislatures

Yes - certainly the Uk experience in the Thatcher era was to reduce income tax by increasing sales taxes. (The overall tax burden for the average family increased slightly over Margaret Thatcher’s administration). Subsequent labour governments didn’t/couldn’t reverse the process.

The EU doesn't mandate any rate of VAT, just how it gets applied if you do have it. Governments are free to exempt classes of goods from VAT (except on the basis of national origin, as that would go against the EU free trade rules), and could even set the headline rate to 0 if they wanted.

That’s not quite true, the PVD very much intends to set a minimum rate of 5%, zero-rating is considered an exemption / derogation, and usually only allowed for continuing pre-EU zero rating.

A sales tax of any form has the property of catching and taxing almost all economic activity. That’s a major advantage to fund government spending.

This broad taxation is bad when it taxes staple food items. It is good when it taxes spending sourced from the underground economy. If you want to cover for the first case, I’d rather see us give direct cash transfers to the poor and then let them (and everyone else) pay the tax.

You pay tax based on your consumption, it makes a lot more sense than paying income tax if you ask me...

It’s a highly regressive taxation scheme putting the burden on those who can east afford it: the lower your discretionary income compared to disposable income, the more you sink into VAT.

The distortionary effect of VAT is much better than taxing income. If you're worried about its relative impact on poor people you can just redistribute more (which EU countries obviously do).

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