[Figlio di Moros]

Here in America, the dems are opposed to replacing all or part of our income taxes with any type of consumption tax while the idea is mainly supported by conservative; however, most of Europe employs a value-added tax, with, I believe, France having the highest rate at 25%?

Since we're lucky enough to have every-day liberals from Europe and America, I'd be interested in hearing your view points on the subject...

[Paradigm]

Consumption taxes promote monopoly. A company does not have to pay income taxes until it turns a profit, but it has to pay sales taxes right off the bat. Thus, it comprises an entry barrier for entrepreneurs seeking to set up shop. Sales taxes also promote non-purchase alternatives as a way of avoiding the tax -- people will be more likely to do trades rather than transactions that would have to be taxed. In addition, if the tax is high enough, businesses with underpaid employees might have an incentive to wink at employee "shrinkage"(i.e. stealing), as well as offering lower prices to those who "don't need a receipt." There are a number of ways in which sales tax can be evaded, and to the extent that one relies on sales tax for revenue, this means having to raise the tax, thus further harming the economy. This is all leaving out the most obvious reason for liberals to oppose a consumption tax: It's regressive.

The sales tax becomes even more of a disadvantage if it's different across bordering areas. Here is a Google Earth image of the border between Pennsylvania and Delaware:


The yellow dots represent shopping malls. Pennsylvania has a 6% sales tax, while Delaware has none. Delaware is able to attract a lot of business from its neighbors across the state line. This in turn raises property values, which allows Delaware to raise more revenue even from a lower property tax. A similar pattern could be seen on the border between Massachusetts, which relies heavily on sales tax, and New Hampshire, which mostly uses local property taxes.

As for the VAT of those European countries, I'm sure their strong labor laws help somewhat in reducing some of the negative effects, but I think they'd be better off without it.

[Dr House]

As for the VAT of those European countries, I'm sure their strong labor laws help somewhat in reducing some of the negative effects, but I think they'd be better off without it.

European governments spend significantly more than the American government, and run smaller deficits (to their credit--there is no better supply side stimulation than a balanced budget given budget deficits swallow up credit). There is a limit to how much tax can be collected by an income tax, as evidenced by the fact that the Nordic region collects less than 25% more as a percentage if GDP from income taxes than the US does. So an additional source of revenue is needed.

[greysnow]

In Germany only the end consumer pays VAT; businesses buying from businesses pay it when making a purchase, but for them it is immediately tax deductible from their own VAT that their customers paid and that they are responsible for transferring to the revenue service. We have a 19% sales tax right now for most goods, with a reduced rate of 7% for food items, books, and some other articles. This was raised a few years ago from 16% to compensate for a lowering of payments to the unemployment insurance system -- a neoliberal move.

A high VAT tends to either strangle consumption and/or to force dealers to lower their margins, and will thus lead to worse pay / layoffs in the retail sector, and perhaps some dampening in the bulk dealership and producing sectors, especially those that produce everyday goods. In Germany, many see a high VAT as unsocial, and the German left would prefer lowering it and compensating for the loss by raising direct taxes, for instance on high incomes.

[Icon]

Consumption taxes promote monopoly.

This is an argument I haven't heard before. Granted, it's true that businesses pay a portion of the sales taxes for the goods they sell, and that can establish a barrier to entry... Anyway, interesting argument there.

Since we're lucky enough to have every-day liberals from Europe and America, I'd be interested in hearing your view points on the subject...

The burden of consumption taxes falls more on the poor than on the rich. People of lower incomes have historically spent a larger portion of their incomes on consumption than people of higher incomes.

Thus, if the poor person is spending 100% of his income on consumption, and the consumption tax is 10%, the poor person is effectively paying an income tax between 0% and 10% depending on the price elasticities of demand and supply of the goods he is consuming. Conversely, if the rich person is only spending 50% of her income on consumption, her effective income tax would be between 0% and 5%, but always lower than the poor man's.

Such is, perhaps, another reason why liberals would take issue with consumption taxes; they help the rich and hurt the poor.

[TropicalK]

I don't see how consumption taxes promote monopoly either.

There should be some method of proportionally taxing investment activities to be fair to the poorer people. I know of the negative income credit, but that may not be able to go far enough.

However, I think the idea should just be scrapped, as income tax has less distortion, and use taxes are more efficient.

[Icon]

Another thought, following the 'monopoly' line:

Consumption taxes would hurt the unemployed. While people who have an income of zero (e.g. are unemployed) would naturally pay no income tax, they must continue to consume in order to survive. Thus, they will continue to pay a consumption tax even though they have no income.

[Ter]

The burden of consumption taxes falls more on the poor than on the rich.

That is correct.
The only fair tax is personal income tax. The more you earn, the more you pay, in percentage points of course.

Ter

[Dr House]

A high VAT tends to either strangle consumption and/or to force dealers to lower their margins, and will thus lead to worse pay / layoffs in the retail sector, and perhaps some dampening in the bulk dealership and producing sectors, especially those that produce everyday goods. In Germany, many see a high VAT as unsocial, and the German left would prefer lowering it and compensating for the loss by raising direct taxes, for instance on high incomes.

You might wanna look at the other side of the pond to see the flaw with that reasoning. The US federal government refuses to tax consumption, and as a result it is chronically starved of funds because federal income tax receipts are close to their upper limit.

The only fair tax is personal income tax. The more you earn, the more you pay, in percentage points of course.

The earned income tax is eminently unjust in that it robs a man of the fruits of his labor. On principle it should not exist, and if it does it should be for practical reasons rather than any sense of social justice. Investment and corporate income taxes on the other hand are not, but they are problematic from a practical perspective as they discourage savings and capital investment, which is the sole driving force of economic growth.

[Figlio di Moros]

Consumption taxes would hurt the unemployed. While people who have an income of zero (e.g. are unemployed) would naturally pay no income tax, they must continue to consume in order to survive. Thus, they will continue to pay a consumption tax even though they have no income.

That is correct.
The only fair tax is personal income tax. The more you earn, the more you pay, in percentage points of course.

But does the pracitical side not measure to you? Wouldn't you rather add encouragement to the unemployed to find employment, to increase their productivity and investment?

[Paradigm]

But does the pracitical side not measure to you? Wouldn't you rather add encouragement to the unemployed to find employment, to increase their productivity and investment?

Seriously? You're going to argue that those who aren't earning money need any extra encouragement to go earn some money? Every heard of involuntary unemployment? Or do you just think that recessions are instances of large amounts of people taking a vacation?

[Figlio di Moros]

:eh: Seriously? You're going to argue that those who aren't earning money need any extra encouragement to go earn some money? Every heard of involuntary unemployment? Or do you just think that recessions are instances of large amounts of people taking a vacation?

And I'm sure you've heard of welfare queens... the point is, yes, the people on the bottom need as much fire under their ass as possible; better overkill for some than no motivation for others. Besides, don't you favor the LVT in order to encourage more productive use of land?

[Wolfman]

The solution to welfare queens is really rather simple Figlio: You can only collect welfare for 25% of the time you were employed. We keep Welfare (which means there is less of a chance of the unemployed becoming homeless), it's significantly harder to become a 'welfare queen', and so on. Also, as far as I know, a very small number of people who collect welfare become 'welfare queens'.

[Figlio di Moros]

The solution to welfare queens is really rather simple Figlio: You can only collect welfare for 25% of the time you were employed. We keep Welfare (which means there is less of a chance of the unemployed becoming homeless), it's significantly harder to become a 'welfare queen', and so on. Also, as far as I know, a very small number of people who collect welfare become 'welfare queens'.

Welfare is different than unemployment, and there's a multitude of programs that people can draw from. For instance, I had neighbors a couple years back that were accepting checks from welfare, workers comp, social security, and Walmart.

[Dr House]

And I'm sure you've heard of welfare queens... the point is, yes, the people on the bottom need as much fire under their ass as possible; better overkill for some than no motivation for others. Besides, don't you favor the LVT in order to encourage more productive use of land?

Income taxes are not a disincentive to work, welfare is. You can have income taxes without welfare.

You can only collect welfare for 25% of the time you were employed. We keep Welfare (which means there is less of a chance of the unemployed becoming homeless), it's significantly harder to become a 'welfare queen', and so on. Also, as far as I know, a very small number of people who collect welfare become 'welfare queens'.

Welfare creates a disincentive to save, and rewards the indolent. I would favor replacing it with guaranteed work programs, as well as compulsory unemployment savings.

[Figlio di Moros]

Income taxes are not a disincentive to work, welfare is. You can have income taxes without welfare.

I never claimed income tax=welfare; I said consumption taxes help light a fire under the ass of the unemployed. Not to mention the general influence to cut consumption, earn more money, and increase savings.

[Dr House]

Consumption taxes don't actually encourage savings all that much. What they do is transfer resources allocated to public consumption from private consumption, therefore untaxing savings.

[Wolfman]

Woops, wrong argument Figlio.

My solution to Welfare: require payments to coincide with school (ie, as you are collecting welfare and working atleast part time, you also have to be going to school for atleast 8 credit hours). Make the payments equal to tuition plus 125% (would cover school expenses plus some extra). Add some requirements based on how long you've been working, so on.

Also, when a person is on works comp, there is a limit to how much they can work, so collecting that and a check from walmart (or a similar low income buisness) isn't uncommon from my understanding. Social Security payouts aren't the much either most of the time (especially if your area has a high standard of living).

House: Most of my ideas for social services (like unemployment, welfare, so on) amount to a forced savings system with a Consumers Cooperative in terms of administration.

[Dr House]

My solution to Welfare: require payments to coincide with school (ie, as you are collecting welfare and working atleast part time, you also have to be going to school for atleast 8 credit hours). Make the payments equal to tuition plus 125% (would cover school expenses plus some extra). Add some requirements based on how long you've been working, so on.

Math, science and technical (engineering, etc.) college degrees should be fully paid for, including room & board. Other college degrees (such as liberal arts) are generally a waste and should only be partially subsidized if at all. Worker retraining as part of welfare is a good idea though.

[Wolfman]

There are some degrees that are liberal arts that are very importent as far as I'm concerned. An Art degree includes electronic imaging and graphic communication, which are used by different levels of the government, in addition to various private companys. Liberal Arts include languages (useful in international relations/buisness) and buisness degrees.