* 'We want to use the money for worthy purposes' isn't a rationale. A rationale is a reason people should pay.
Fucking imagine if you bought a car and when you resold it you could subtract the depreciation from your income taxes. No wonder the French decided public decapitation was the only solution.
Because if you're buying it for personal use it's presumably for consumption, and if you're buying it for business use it's for business use. In the latter case you don't want to tax it because that would hurt businesses with low margins and give vertically integrated businesses an edge. There's definitely abuse of this with small businesses, where someone buys a pickup truck for "business use" but uses it for personal use, but that should be fixed with better enforcement of the tax code, not changing the tax regime entirely.
>while a rich person makes a big purchase in the form of stock
Because VAT/sales tax are consumption taxes, not a transaction tax. Stocks aren't consumed, so they aren't taxed.
>Fucking imagine if you bought a car and when you resold it you could subtract the depreciation from your income taxes.
So what are you advocating for? Abolition of all consumption taxes?
give vertically integrated businesses an edge
Why is that bad? Vertical integration allows the more efficient use of resources.
So you want to make financial transactions more expensive and make the market less liquid? What good can come of this?
>and the abolition of capital gains tax.
What justification is there to tax someone buying $500 stocks and later selling it for $1000 the same as someone buying $1000 worth of stocks and selling it for $500? Taxing buying $500 worth of TVs makes sense, because it's presumably consumed, but it doesn't make sense for financial instruments.
>Why is that bad? Vertical integration allows the more efficient use of resources.
Companies already reap the savings from vertical integration. I'm not sure why the government should give them additional incentive to vertically integrate. Suppose the tax rate is 10% and we have two supply chains, one that's vertically integrated and the other that's not vertically integrated. Suppose further that both are equally efficient (which is plausible, given that nimble firms can outcomplete big conglomerates). Why should the government penalize the non-vertically integrated supply chain to the order of 10%?
Fewer stock market bubbles, less asset inflation.
Stock bubbles promise to return your investment several-fold. See: stocks like Tesla or even Zoom (during the pandemic). A 10% tax isn't going to dissuade anyone from the prospect of making 500%. It will dissuade someone from buying broad-market ETFs or mutual funds that return on the order of 5-8% a year.
So what? I already paid taxes on my income, now I need to pay additional taxes on what I consume...why? Kindly note here that I'm not arguing against the concept of paying taxes, but against the fact of being taxed on both income and outgoings.
It's covered in the wikipedia article: https://en.wikipedia.org/wiki/Consumption_tax
None of this articulates why I should pay tax on both earning and spending money.
You must not be reading hard enough.
"To the extent that taxing something results in less of it (whether income or consumption), taxing consumption instead of income should encourage both work and capital formation, which increases economic growth, while discouraging consumption.[3][4] Secondly, the tax base is larger because all consumption is taxed. "
"Many economists and tax experts favor consumption taxes over income taxes for economic growth.[26][27][28] "
Perhaps you're the one who should read more carefully.
Diversification and/or anti-evasion? As per the wikipedia article consumption taxes are better because they favor investment rather than consumption, but it's pretty easy to evade by smuggling the money out of the country. This is very easy to do, especially if you need to transfer money of a country for a "business venture". Income taxes are also evadeable by taking money under the table. Taxing both basically makes it impossible to evade taxes.
There is no such rationale: its a compromise between ideologically opposed forces with diametrically opposed goals for society, not a coherent policy with an integrated rationale.
That's...kinda silly on the "work" part as an economy-wide statement, and the way that it is true selectively about work and also true about capital formation is...well, there is a reason that people who make this argument are vague and handwavey about how it works.
Taxing things doesn't just magically reduce them in isolation, it reduces them by reducing the net marginal value realized from each marginal increment. But taxing consumption reduces the marginal value of work exactly the same as taxing income, because the marginal value isn't realized by getting a paycheck but by spending the paycheck on consumption; it discourages work, rather than encouraging it. At the same marginal rate, a consumption tax reduces the incentive for additional work just as much as income tax.
But, ät the same marginal rate" is key: VATs are essentially regressive, whereas modern income taxes tend to be progressive, sometimes fairly sharply so on "regular" income, counteracted slightly for the capitalist class by counting the kinds of income they have as eligible for favorable rates.
So, at any given overall revenue level, a VAT is going to have higher effective marginal rates for lower-income workers and lower effective marginal rates for higher-income workers than a politically palatable income tax, and that: that it reduces the incentive and reward for work for lower income workers while raising it for higher-income workers (whose work is also higher-return for the capitalists capturing most of the value produced by work) is what they are referring to when they say it encourages (some) work and favors capital formation. Its not that it coincidentally makes it harder for lower-end workers to get ahead by worker and pushes rewards up the scale both within the working class but also out of that class into the petit and haut bourgeois classes, but that is indeed the exact effect that those "economists and tax experts" are praising.
It's also not a coincidence that the "economists and tax experts" tend themselves to be high-income workers or petit bourgeois, as well.
Most of the biggest expenses in people's lives - housing in cities, cars for commuting, food - are for the sake of maintaining their job, or just staying alive. In a fair world they'd be able to deduct those expenses just as much as businesses can. (This doesn't just apply to VAT).
Okay but where do you draw the line between expense and consumption? Sure, you might need that BMW to "drive to work" but obviously a significant fraction of that car's purchase price isn't for "the sake of maintaining their job". Even a benchmark of "cheapest sedan you can buy" is tricky, because you can take public transit (depending on where you live), buy used, carpool, or bike. All of which get you to work but in a slightly worse way. Where do you draw the line between necessity and paying a premium for a better experience (ie. consumption)? Most tax regimes try to account for this, by incorporating a tax-free amount that's supposed to represent the amount need to maintain a basic lifestyle. Any amount above that is presumed to be above that's needed for a basic lifestyle and therefore "consumption".
The thing is, a company can buy or lease that BMW as the CEO's company car and the taxman won't bat an eye. It's the double standard that really bothers me.
>There's definitely abuse of this with small businesses, where someone buys a pickup truck for "business use" but uses it for personal use, but that should be fixed with better enforcement of the tax code, not changing the tax regime entirely.
Also contrary to what you think company cars are taxed in the us, unless a very specific set of conditions are met. Your example most certainty not count
https://www.irs.gov/publications/p15b#en_US_2023_publink1000...
Don't look up the accounting term "depreciation" for business taxation, or you're going to have a heart attack.
> 'We want to use the money for worthy purposes' isn't a rationale. A rationale is a reason people should pay.
I could equally say "You pay VAT on your spending. Why should you be taxed on your earnings as well?". Ultimately governments need taxes and take them where they can find them.
The benefit of VAT is that it's a tax that's harder to evade, because the rebate system means everyone is reporting on everyone else. A high VAT rate is also a way to do stealth protectionism without falling foul of the WTO rules - domestic producers can pay de facto higher salaries (because the VAT revenue allows you to reduce income tax) whereas the full VAT rate gets paid on foreign-produced goods.
Why not? It seems like you're arguing for a tax break for struggling businesses, but those are the ones that most need to be subject to capitalism's creative destruction. If business A is making a lot of product and consuming a lot of resources, but that product is barely worth buying, and business B produces less but does so more efficiently, it seems to me that business B is more socially beneficial and it's better to tax business A.
And I would argue that this eliminates competition and therefore not socially beneficial.
Businesses don't pay VAT (yes they pay it, but its deducted so they get the money back. The only thing VAT can be accused of regarding businesses is that it's essentially a free loan to the govt)
If you have a business that has more money coming in from sales than your expenses, then you are paying more (usually much more) in VAT than you are getting back.
If you are getting back the same as you pay in VAT, that means you are breaking even on the business side and should start worrying about bankruptcy.
I get VAT refunds on my expenses because I pay more than I take in.
If they were local clients they would also get the VAT they pay through me refunded, so it doesn't cost them anything.
And it's a hole in VAT which enables various fraud.
Without that loophole you should rais the prices for your foreign customers by x% but that could make you globally uncompetitive, hence the loophole.
VAT is not a tax on customer, it's a tax on added value that every (profiting) company along the production chain creates.
Ultimately customer pays it, because the customer pays for everything, both value added and all the costs from previous steps.
But it doesn't mean it's a tax on consumer. Because in absence of it companies could just keep their prices as high as they are (because why lower them if the customer already pays them) while keeping all that money.
If they have more sales than expenses, they will still be net payers of VAT. They can't get more refunds than they paid in VAT.
> I get VAT refunds on my expenses because I pay more than I take in.
Unless you're selling airplanes or battleships, that is probably not allowed in the tax code.
That's an exception rather than the rule. Most businesses have higher income than expenses, otherwise they go out of business pretty quickly.
> If they were local clients they would also get the VAT they pay through me refunded, so it doesn't cost them anything.
Those clients too would generally have higher sales than expenses and so be paying more than they get refunded.
for more info: https://en.wikipedia.org/wiki/Value-added_tax
Just defining it as 'a tax on added value' is meaningless. Why should we wish to tax value, which is something we all seek? To be sure, businesses often just mark up the price of things, and we can in turn tax the profits of the business same as individuals are taxed upon their income.
Thing is, I am not operating a business; as a consumer I just see that I am being charged a significant premium on the money I spend (and a smaller but non-trivial one on the cost of VAT administration up and down the chain). It's not clear to me why 'value added' needs to be taxed in the first place, as opposed to business profits or dividends.
I don't have a firm opinion either way, but I noticed few things that work in favour of VAT in minds of lawmakers.
First, the budgetary income from VAT is huge(a lot more than all other taxes combined) . I remember when my country established VAT for the first time. The budget went from around 33bln a year before to 83bln 2 years after. Also such increase in income made even more money available as foreign loans. This makes me think 90% of infrastructure built in last 30 years would probably not happen without it(there was a lot built, a big chunk was financed with EU subsidies, but local funds of some 20%~50% were required and of course having VAT was a condition of EU's membership).
Second. Lawmakers see VAT as something companies can't scam so easily (despite there being huge frauds in many countries). For example with income tax there is always an option to inflate expenses to minimize profits on paper. With dividends, a business doesn't have to pay them, benefits can be given in many different ways each requiring it's own detailed water tight description in relevant laws. Special measures for R&D are granted, special tax zones for disadvantaged areas etc. . Vat is seen as complex, but tax on business income is IMO a lot more complex. Still most countries have both business income and company dividend taxes.
Finally. If it is true as it appears that consumers pay the bulk of vat. This tax can be used to shape consumption. For example here we have 0% vat rate on children clothes, 3% on some food items, 8% on building materials if you're building a home for yourself, but 23% for developers. Anything that gives more control to lawmakers will be seen as favorable.
So in summary, does VAT need to be in place? I don't know, but I can definitely see a lot of forces pushing to keep it in place for the above reasons.
One of those taxes is a tax on the value a business add to good and services, another is on the product of your labour, etc.
Now, you are arguing on a different system where this tax is not to your liking. This is a political choice and up to you to vote and promote other sources of government revenue.
You can't really do a progressive sales tax or VAT, logistically.
Wish we'd just bite the bullet and move towards a land value tax though.
Although both VAT and income tax require states with extensive administrative capacity so I guess if there was political will to do income tax only it could be done. Maybe it is the politics of progressive vs regressive taxation? Or just that doing income tax only would mean very high income tax and high tax evasion?
The benefit is that with long production chains involving multiple business entities you tax the places proportionally to how much they earn from that production chain.
It's like income tax, but harder to dodge because you can't easily hide the sale.