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Slightly True, But So What?

One in all the same old suspects trotted out the usual lies and myths about VAT in at the moment’s CityAM Forum. The 50 per cent of earnings tax payers on lower incomes account for just 15 per cent of income. The longer-time-period goal should be to get rid of earnings-tax payment for all these earning below £20,000. This, especially if we move away from national insurance coverage as a tax, would create powerful new work incentives. It could cut back the fiscal costs of underemployment by bringing again into the workforce many who would in any other case have had the highest claims on public spending. It would give larger traction to the government’s much-needed reforms on welfare. Fair sufficient thus far.

This alteration could be funded by a shift to consumption taxes, primarily by means of a widening of VAT coverage to include the identical range of goods and providers as in other developed international locations. Such a widening of the VAT base might increase the £20bn to £25bn required to elevate 50 per cent of earnings tax payers out of earnings tax.

It would elevate VAT receipts by about 25 per cent. Idiot. VAT is just a tax on the gross profits of businesses, which includes their wages after all. Whether a hairdresser pays £2 revenue tax or £2 VAT on a £10 hair reduce makes little difference to the tax burden or its deadweight prices. As I confirmed last week, it is the most damaging tax of all.

The fact that VAT only applies to the productive economy and not land-based activities (housing, food, banking) just makes it worse. Note again: he does not recommend that VAT is utilized to his own sources of earnings: health services, higher training, or quangocracy. Consumption taxes make sense in terms of a fairer distribution of the tax burden between those in and out of the workforce.

They can be paid by the extra affluent elderly and would, in impact, fund a lot of the additional advantages, like heating allowances, that come their way. It could mean that the baby boomers would make a fairer contribution. VAT is not a consumption tax, it’s a tax on financial exercise and is essentially the most rapid trigger of unemployment (worse than Employer’s NIC).

If you would like “the affluent elderly” to pay extra taxes without clobbering the unemployed with a double-whammy of upper taxes and lower possibilities of employment, then collecting extra revenue from the rental worth of land is the option to go. That way there’s more reward for working and more incentive to work.

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Consumption taxes fall on imports, including imports of providers, whereas earnings taxes are a tax on domestically-produced outputs. Slightly true, but so what? If you wish to be protectionist, then let’s be honest about it and have import duties as an alternative of VAT. Consumption taxes additionally enhance incentives to avoid wasting. Save the biggest lie for last. VAT measurably reduces the dimensions of the financial system; it reduces people’s earned incomes and earnings disproportionately; it erodes the worth of companies.

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