Many EU countries have a “VAT” and like feel like this is kinda targeting poor people. Like, for the rich, this is insignificant, for poorer people, a (example) 20% tax would be a huge burden. Why do they do this?
🤔
It is, but it’s also a very efficient and difficult to evade tax. For many EU countries the VAT revenue is equal or larger than the income tax revenue.
Most Europeans don’t mind it. You can control your spending, so VAT doesn’t hit us in inconvenient ways, like for example, taxes on cars and property.
European countries compensate poor people with good social programs. So in the end, poor people are getting more benefits than the VAT they pay.
I agree overall, but VAT is not all that difficult to evade, at least in the service industry. Paying handymen in cash is common in many countries, and that’s a means to evade VAT. Hell, even using them to buy the building or landscaping materials for you (being a registered business they purchase for prices without VAT) saves you on most of the tax. Then there’s service barter. I did it only once, a long time ago, but it can serve as an example: I did family portraits (photography) for my physio, in exchange for a number of physio sessions. If we charged each other, it would have cost each of us, say, 250 Euros, but we’d only see 200 each, and the state would get 100. So, savings of 50 for each of us.
Sure, but those are relatively small potatoes.
And if a single person does it a lot, then the tax authorities can easily examine their spending and prove that they are spending more than they are officially earning. And then they can apply punitive measures.
They also tax the rich through progressive income taxes, capital gains taxes, corporate taxes etc.
If you’re asking why not just tax the rich in place of a VAT, well, it’s sort of why not tax the rich to pay for absolutely everything we could want. The costs and difficulties in taxing the rich generally scale to the point where the marginal revenue raised by the tax becomes negative.
And this is why the 1983 tax cut in the US increased revenue as at the reduced rates more wealthy people paid rather than avoided taxes.
Oh interesting, I wasn’t aware there were actually examples of the Laffer curve working in reality! I alwats thought it was just a theoretical that conservatives had latched onto…
It is the only incident of Laffer being proven correct as far as I know. It is the 2nd to last time spending was cut along side taxes.
Cool to know about, thanks!
Sadly we should cit spending along side tax cuts. Had we done that things would be better
Honestly, I’m just not sure deficit spending outside of wars/economic emergencies was a great strategy and instead, a time bomb Reaganomics left everyone else to deal with. I think that’s the ridiculously outsized part of spending that would’ve been the best to cut. If I remember correctly, servicing the debt is now on par with American military spending…
Yeah but honest well thought out economic conservative budgets are rare and unpopular.
If you’re asking why not just tax the rich in place of a VAT, well, it’s sort of why not tax the rich to pay for absolutely everything we could want.
So basically, you can only tax so much before the rich get mad and leave the EU? 🤔
No, EU member states handle taxes individually.
But, that ease of travel is one inducement. (Consider, as billionaire Spaniard learns the government plans to tax an additional 100 million euros. With no border, is moving a few km next door to Portugal worth a 100 million?
More meaningful though is business taxes/regulations, which are a large part of why Europe has lost so many Unicorns to the NYSE and why within America, Texas is kind of killing it in terms of business relocations.
I personally think it’s a race to the bottom but those are the constraints that exist.
VAT is a sales tax, not an income tax.
And yet the claim that it is regressive is accurate. It impacts those that have less wealth to a greater degree which makes it regressive.
How so? A poor person would buy less things, thus pay less VAT, than a rich person buying more things
They pay a larger percentage of their income in taxes
Sales taxes, including VAT, are inherently regressive. Normally things like unprocessed food are exempted to minimize impact, but it does still affect the poor more than the rich. Why keep them? They are easy to collect, hard to avoid and can bring in lots of revenue without people noticing or complaining.
Because we let the rich people make the rules.
It’s a vat. Like a vat of oil. They deep fry the money, and then recirculate the crispy delicious money into the ecconomy. That’s what thfy mean by eat the rich. Deep fry their money, and eat their faces.
…what? Whys everyone looking at me like that?
Nothing will meaningfully improve until the rich fear for their lives
Here in the Uk we have tax for services (council tax), tax for health care (national insurance), tax for all your income (income tax) and almost everything you buy includes a small tax called VAT (value added tax) which is about 20%. There’s also a few taxes on cigs, alcohol and petrol.
VAT not on food, books but it on basically everything else. The more things you buy, the more tax you’ve paid. You more yoy spend on items the more you pay.
I don’t know why people are calling it a tax on the poor. It’s obviously a tax on the biggest consumers.
It’s obviously a tax on the biggest consumers.
Yes and no.
You’re absolutely correct in terms of total dollars contributed.
But the flip side is in terms of percentage of income. The wealthier you are, the more likely you are to have stocks, property and the like, which are usually exempt. So, as a total percentage of income, a VAT tends to hit the poor harder. (That being said, other taxes like capital gains are more progressive etc to make up the difference.)
Stocks and property are taxed in the UK, just not with VAT: we have capital gains tax, dividend tax, and stamp duty.
Oh absolutely, it’s just the VAT itself is regressive, not the overall tax system.
