How a VAT could tax the rich and pay for universal basic income

[redqueen]

...
The Tax Policy Center estimates that the VAT in conjunction with a UBI would be extremely progressive. It would increase after-tax income of the lowest-income 20 percent of households by 17 percent. The tax burden for middle-income people would be unchanged while incomes of the top 1 percent of households would fall by 5.5 percent.

It may seem counter-intuitive, but the VAT functions as a 10 percent tax on existing wealth because future consumption can be financed only with existing wealth or future wages. Unlike a tax imposed on accumulated assets, the VAT’s implicit wealth tax is very difficult to avoid or evade and does not require the valuation of assets.

A VAT also could benefit states. While states would not have to conform to the new federal law, doing so could improve the structure of their consumption taxes, which tend to exempt services and necessities and often tax businesses. Canada’s provinces provide an example of how national and sub-national VATs can “harmonize.”
...
Ultimately, the real debate will be about how to use the money generated by the VAT. But if new revenues are an inevitable part of any effort to control the federal budget, a VAT with a UBI could be one of the best policy options.

https://www.brookings.edu/blog/up-front/2020/01/30/how-a-vat-could-tax-the-rich-and-pay-for-universal-basic-income/amp

[Cartoonist]

1. Never count on the rich

We tried a luxury tax here in CA. The thinking was that when the rich bought a yacht, they would pay more taxes.

They just stopped buying yachts.

A VAT is regressive.

[redqueen]

2. It also hits companies who currently avoid federal taxes altogether.

(edit: saw your post below and deleted my first sentence as it was based on a misreading of your post)

This guy wrote the econ 101 textbook and explains it well.

[Cartoonist]

8. It wasn't just one item.

Cars, jewelry, and other luxury items. They stopped buying them.

[redqueen]

9. VAT alone is regressive. VAT+UBI is very progressive. nt

[comradebillyboy]

3. In the EU the value added tax is about 15%. It's a sales tax so it

hits everybody, not just the rich.

https://ec.europa.eu/taxation_customs/business/vat/what-is-vat_en

Value added tax is

a general tax that applies, in principle, to all commercial activities involving the production and distribution of goods and the provision of services. However, if the annual turnover of this person is less than a certain limit (the threshold), which differs according to the Member State, the person does not have to charge VAT on their sales.
a consumption tax because it is borne ultimately by the final consumer. It is not a charge on businesses.
charged as a percentage of price, which means that the actual tax burden is visible at each stage in the production and distribution chain.
collected fractionally, via a system of partial payments whereby taxable persons (i.e., VAT-registered businesses) deduct from the VAT they have collected the amount of tax they have paid to other taxable persons on purchases for their business activities. This mechanism ensures that the tax is neutral regardless of how many transactions are involved.
paid to the revenue authorities by the seller of the goods, who is the "taxable person", but it is actually paid by the buyer to the seller as part of the price. It is thus an indirect tax.

Bold added by me

[redqueen]

7. Businesses sell to each other as well. Many very profitable businesses do not pay any federal taxes

The reason this tax is popular in other countries, including the ones we admire for their robust social programs, is because it is impossible to dodge by rich corporations and individuals.

[comradebillyboy]

10. "Value added tax is a consumption tax because it is borne ultimately by the final consumer.

It is not a charge on businesses."

That's a direct quote from the EU Website.

[redqueen]

11. In theory yes. In practice no.

Let's say FedEx buys a self driving truck.

They and all the producers of every component have to pay a tax all along the production chain.

How does FedEx pass that cost along to consumers?

They are buying self driving trucks to lower their costs. That increases their profits. There is no need to raise prices, because they're already coming out way ahead. Also, raising prices on the consumers just pushes them to use UPS.

[muriel_volestrangler]

13. The point is that most of it then comes back to everyone via the UBI

and while poorer people spend a greater percentage of their income on taxable goods and services, they spend less in absolute terms. The net result is a progressive change in taxation. It's the tying of the tax to a 'UBI' (not enough to live on, it must be noted; it looks like it's been set at the level for which the taxes for middle-income people are unchanged) that makes the complete proposal progressive.

It might also act as a deterrent to excess consumption. Which could be a good thing for the environment.

[comradebillyboy]

14. In the US we have neither UBI nor VAT. Good luck enacting a

nationwide 15% sales tax.

[muriel_volestrangler]

16. You don't have Medicare for All, either

but the point is not to say "we don't have this, therefore we shouldn't bother talking about it"; progress happens when people suggest new things.

There is even a word for a political outlook that says "don't change things". But I know it doesn't apply to you; you're just being pessimistic on this occasion.

It's suggesting 10%, by the way.

[PETRUS]

17. What you say is true.

I don't consider myself an expert on tax policy (although I do have a fair amount of economics under my belt), but I did just read a book by two people who are: "The Triumph of Injustice," by Emmanuel Saez and Gabriel Zucman. The book is part historical data (and political history), but it's also a prescriptive text. The authors sketch out what they think an ideal tax regime would look like. The consider a VAT, and note that it represented an improvement over the consumption taxes it replaced (in countries where it was enacted), but in the end they reject it. Their two main criticisms are that it does have a regressive quality, but also - and more importantly - it gives a pass to certain segments of the economy, in particular the finance industry (which represents a huge pool of money, and is a significant driver of current wealth/income inequality). As an alternative to a VAT, they propose what they call a "national income tax," which is distinct from (and in addition to) the Federal income tax. It would apply to all forms of income (i.e. interest and corporate profits as well as labor income), and draws from a larger base than a VAT. I'm not saying these two people are the final arbiters on this issue, but they make a lot of sense. I highly recommend their book. They also set up a website - www.taxjusticenow.org - that let's a person design their own tax code and shows the effects.

[redqueen]

18. Yes, I prefer separate taxes for the financial industry issues.

A financial transaction tax being just one example.

[PETRUS]

19. Yeah, I also think an FTT is a good idea.

Thanks for your posts, by the way. Honestly, I have mixed feeling about both UBI and VAT, but I'm glad the ideas are being discussed and I appreciate the articles you've been providing.

[redqueen]

20. Thanks!

I really appreciate the kind feedback!

[Volaris]

21. Why cant we just legalize a definitional distinction between income and wages?

The first hundred K you're paid (or that you pay yourself for running your small business) is NOT TAXED, as its wages you're paid in exchange for your valuable LABOR.

Anything that kicks that amount ABOVE 100K per year is income, and is taxed starting 10%, on a progressive calculus curve.

[redqueen]

27. Because lobbyists.

Wealthy people have been successful at avoiding this kind of reform for decades. What makes you think that will suddenly change?

[safeinOhio]

4. Thanks for the info.

If big business comes out against it, I'm all in.

[redqueen]

6. One wonders why we don't already have it, since it hits businesses so effectively.

One can only guess as to the reasons for that.

[MichMan]

12. I imagine a lot of voters wouldn't be in favor of a national sales tax on everything they buy?

[redqueen]

15. It can be tailored to exempt necessities

and be higher on luxury goods.

Also the argument that social spending = higher taxes and is therefore bad is a right-wing argument.

[Volaris]

22. If it were SPECIFICALLY APPLIED to paying off the national debt, I'd be in favor of that.

[MichMan]

23. Do you think it would be a winning issue for a campaign?

I don't. I think the backlash from voters would be enormous.

[Volaris]

24. The gop makes hay out of the national debt n deficit whenever a democratic occupant

Sits in the WH.

fuck their bullshit, let's call them on it for a decade, and see what happens.

[redqueen]

25. Right?

They talk about caring about the deficit, but their actions prove it's just empty rhetoric.

[redqueen]

26. That won't help people.

Trickle up economics will help American people first, and the stimulus to the economy and lowering of the cost of many programs as a result of UBI will help us address the debt.

[OnDoutside]

28. I don't know where Brookings are coming from in saying that VAT is a "progressive" tax. The rich

pay exactly the same VAT as poor people, but as a percentage of income, it's a drop in the ocean, compared to poor people, where it places an increased economic strain on lower-income taxpayers and also adds bureaucratic burdens for businesses.

Value-added taxation is based on taxpayers’ consumption rather than their income. In contrast to a progressive income tax, which levies greater taxes on higher-level earners, VAT applies equally to every purchase.

Here in Ireland, we have

Value Added Tax (VAT) is a tax charged on the sale of most goods and services in Ireland

VAT is charged at different rates for various goods and services. These are the current VAT rates in Ireland that are in place for 2020 .

(The only change from 2019 is that VAT of 13.5% is now charged on food supplements)

23% is the standard rate of VAT.
All goods and services that do not fall into the reduced rate categories are charged at this rate. See below for reduced VAT rates.

13.5% : This lower rate of VAT is charged on items including
fuel (coal, heating oil, gas), electricity, (It is 5% in the UK)
vet fees,
building and building services,
agricultural contracting services,
short-term car hire,
cleaning and maintenance services.
Catering and restaurant supplies, including vending machines and take-away food (excluding alcohol and soft drinks sold as part of the meal)
Food Supplements
Hotel lettings, including guesthouses, caravan parks, camping sites etc
Cinemas, theatres, certain musical performances, museums, art gallery exhibitions
Fairgrounds or amusement park services
Hairdressing services.
9% is a special reduced rate of VAT for
newspapers
Facilities for taking part in sporting activities including green fees charged for golf and subscriptions charged by non-member-owned golf clubs.
electronically supplied publications
More here on the 9% VAT Rate

4.8% is a rate of VAT specifically for agriculture.
It applies to livestock (excluding chickens), greyhounds and the hire of horses.

0% (Zero) VAT
Most food including Tea, coffee, milk, bread, butter, cheese , milk , vegetables, meat, etc. (Not when supplied from a vending machine or in the course of catering and NOTt food supplements such as slimming or sports supplements and protien supplements)

Books, children’s clothes and children’s shoes,
Oral medicine for humans and animals,
Vegetable seeds and fruit trees, fertilisers, large animal feed,
Disability aids such as wheelchairs, crutches and hearing aids.
All exports,

VAT Exempt :
There is no VAT on financial, medical or educational services.
You should also not pay VAT for live theatrical and musical performances (except those where food or drink is served during all or part of the performance)

In Ireland – you can buy goods from outside the EU up to a value of €22 without incurring any VAT charges

VAT rates in the UK
In the UK – the standard VAT rate is 20%
There is a 5% VAT rate on home energy , children’s car seats
Zero VAT on most food and children’s clothes.

http://www.moneyguideireland.com/vat-rates-in-ireland-to-increase.html

[redqueen]

29. Read it again - VAT + UBI progressive

VAT on its own is regressive, ofc