Black Mamba
Member
I don't want to sound like a dick, but once again you're explaining to me what VAT is, instead of explaining to me why a system that includes VAT and income tax is a better than a system that includes only income tax.
Come on, how hard of an answer can that be?
I did explain it. It reduces waste, compliance costs, and allows the money and time go to more productive things (more investment, consumption of goods/services, saving, etc).
How?
Seriously, explain it to me in small words because I don't get it.
The way I see it we currently have a system that require you to pay income taxes, you suggest a system that on top of income taxes will make you pay VAT, how is your system simpler?
I said we could explore replacing the income taxes for the bottom 60% or so with a VAT. All those people wouldn't have to file any sort of income tax. It's clearly an easier system for them. Weren't you the one recently complaining about filing your own taxes?
The complication in the income tax is the same, and mine don't have VAT, what am I missing here?
How does introducing VAT simplify our income tax code?
A VAT doesn't simplify our tax code. We have to simplify it separately.
I'm saying a small VAT + a simplified income tax code would be beneficial to the current tax code.
That said, a sales tax is theoretically always less costly that the most simple income tax. I say theoretically because I have my doubts at high sales tax levels (ie 60%) due to behavior issues, but at low levels the evidence is on its side.
Why?
Seriously, why do you think that's the best system?
I can show you the drawbacks of VAT, fuck, you pointed them out yourself, what's the benefits?
It's not the best system. The best system wouldn't tax income or consumption.
I explained the benefits. Compliance with a sales tax is much simpler, more straightforward. It also requires less enforcement costs and less manpower to figure out to comply with. When you add this up, this means more resources are freed up to going to productive parts of the economy, whether it means more time to relax or money to reinvest, or whatever. Also, behavior is different depending on the tax.
Don't forget, you also lose out with gov't withholding. Present value of money > future value. Because you have less money, you have less money to save. Imagine you make $30k and saved $5k each year and the gov't took 10% (all withheld). Now you get that money in full and can save up to $5k (or increase it) quicker. And in a good economy where you get say 4% APR, this adds up. Withholding is the gov't's way of taking away some of your purchasing power. This is a real benefit of a sales tax system versus income tax.
I'll try to explain it again.
An income tax allows an easy way to achieve progressiveness in the system. A sales tax reduces loss of economic efficiency in the system. Those are the benefits to each. You ask how the efficiency loss is less, I explained it: lower compliance costs, lower enforcement costs, behavior, etc.
Very simply, sales taxes generally reduce economic output less than income taxes, but they are regressive. A balance is a smart approach.
here is a study explaining the marginal efficiency costs of certain taxes in canada: http://www.fraserinstitute.org/publicationdisplay.aspx?id=13495