Quote:
Originally Posted by TheNorm
Not at all - those on higher incomes spend more money on VAT-able items, which makes it a progressive tax.
Again, people should be encouraged to save. A combination of low income tax and higher VAT does just that.
|
Make VAT so high that it becomes viable for me and people like me on higher incomes to make large purchases outside the UK and import them I'll do just that and there's nothing the government can do about it, so by trying to charge 25% instead of 17.5% of that 1k LCD TV the government gets nothing while another country in Europe gets 20% along with an export to the UK harming the UK's balance of trade.
Encouraging too much saving isn't wise. Excessive saving cools consumption and slows the economy. Instead of money being spent on goods and services and providing jobs and economic growth it is sitting in people's savings accounts doing nothing. There was a savings glut in Japan which had some rather serious effects on their economy.
Interest rates would end up sitting very low to try and persuade people to consume and if people were to consume and inflation rise for any reason the primary instrument to control it, interest rates, is gone.
People saving drops the government's income as it's relying so heavily on sales taxes, sales taxes have to go up again to try and compensate, consumption reduces and/or goes into importation and/or grey/black markets as increased rates of taxation cause increased evasion as it becomes more worthwhile and round and round it goes.
Purely from the economic point of view it's really not a hot idea.
The idea was mooted in the US and shot down:
http://www.politifact.com/truth-o-me...dding-fairtax/
EDIT: Re: Regressive nature of this proposal:
Quote:
|
A regressive tax means it impacts people with lower incomes more than it does those with high incomes. For example: People who earn a poverty-level wage are likely to spend all of their wages every year, so they are taxed on 100 percent of their earnings. Rich people, though, might only spend a fraction of their annual income, and are only taxed on that portion. So the wealthy person pays a lower tax rate than the poor person.
|