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.
being a registered business they purchase for prices without VAT
That’s not true, sorry. A business pays stuff with VAT included too, but they can later claim back the VAT they paid against the VAT they raised from selling stuff, so they don’t have to hand all of that over.
I’m personally not sure how it works. But when we were upgrading our bathroom, the tile shop added the VAT to the quoted sale price. I then asked a friend of mine who is VAT-registeted to buy it for us, and he got it from the same warehouse for the non-VAT price.
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.
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? 🤔
More like the rich will get even more proficient in tax avoidance
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.
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.
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
Depends on what is being paid, the VAT model being used, the country etc.
For instance in France the base tva is 20%, but food and hygiene products have a special status which reduces it to 5.5%
I forgot the exact details buI if I recall correctly in Germany they have two models A and B depending on the product, forgot the percentage though. And then if you’re buying something for work the percentage can change again.
Regardless how you frame a VAT it will always be regressive. That doesn’t mean they are bad. It just means it shouldnt be the primary source of revenue.
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That tax is reduced for important goods in most countries, like with bread
All consumption taxes are regressive.
Fortunately they hit the rich harder than poor. Which means there’s more money for the social programs that keep those who are struggling alive
They do not.
Not everywhere. Tax evasion is a thing, and some countries have messy laws. But for vat it does, rich people simply tend to buy more, and more expensive stuff
No, consumption taxes (such as VAT) are generally considered to be regressive, because the rich spend less on consumption relative to their income.
In almost all countries, the top income decile was estimated to have paid a share of their income that is only 60% of what the bottom half pays in consumption taxes.
The inequality impact of consumption taxes: An international comparison - ScienceDirect - https://www.sciencedirect.com/science/article/abs/pii/S0047272723000798
More taxes paid are still more taxes paid. Regardless of whether that’s a large or small portion of someone’s income.
More tax revenue is more money for social services.
I know it’s not all perfectly fair, but it’s not all bad.
Children’s clothing too.
Someone wanna tell me one of those countries with reduced VAT for children’s clothing or bread?
We get reduced VAT on hotel stays and medicine only. Bread, children’s clothing (or more importantly if you need to use it, milk formula, which is going to cost you more) are all full VAT. Estonian here.
In the UK we don’t pay any vat on “essential” goods. And we have a raft of tax relief for lower earners.
Not that it helps much, but it’s better than a poke in the eye.
it’s better than a poke in the eye.
Idk why but this comment made me want to watch something with witty British humor and endearing characters
Can recommend Ludwig for this purpose.
I really enjoyed it, although I do wish it wasn’t so “draw the rest of the owl”.
How’s income taxation?
Here in Estonia we have 22% income tax if you earn enough, but also there’s a 33% tax on the employer’s side + some tiny ones on both sides. 22% sounds completely fine except your pre-tax income is NOT what your employer pays for you, they pay a significant extra. Which is still coming out of your salary in the end, because your employer has to offer you a lower pretax income lol
We get a tax free allowance of £12,570 annually, and then it’s banded from there: Income from £12571 to £14876 is taxed at 19% Income from £14877 to £26562 is taxed at 20% From £26523 to £43662 is taxed at 21% From £43663 to £75000 it’s 42% £75001 to £125140 it’s 45% And anything north of that is 48%
This is calculated on income after any deductions from pay are made, like national insurance contributions, pension scheme payment, salary sacrifice schemes, student loan repayments and so on.
Ah okay, you guys get taxed a lot less then. We have an income tax free portion that slides to 0 by I think 25200 euros annually, at which point you always have to pay 22% of your gross, next year it’ll be 24. And your employer always has to pay 33% on top of your grose too.
The Netherlands, Germany, France, Belgium, Poland. I knew some, others I just Kagi’d
Ah fair enough, not sure the reduced VAT for bread of children’s clothing is going to matter much compared to the insane 1000+ euro kindergarten fees per kid monthly (in the Netherlands). Some of the rest might be nice places to live though.
I don’t know where in the Netherlands you are, but kindergarten is free. I happen to live in the Netherlands. You’re going to get costs such as pens and paper for your kid. But there’s no fees.
I’m not, but I looked into the CoL as it’s the highest paying country in the EU for software engineers. Maybe it was just the it private ones that are paid and I was looking at those implicitly because I was looking at international ones where it wouldn’t be expected for kids to speak Dutch at home already
Youre always allowed to pay. But they’re not allowed to require it
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.
It’s regressive in the sense that poor people spend more of their money on goods and services that include VAT.
It’s also “broad based” in that wealthy people spend more money (in total) on things, and the vendors of those things collect the tax.
For example, if a company in Australia sells a $11m private jet to some asshole, that asshole just paid $1m in taxes.
Said asshole may well pay no income tax by virtue of their ability to disappear taxable income through complex business structures.
What do you mean “instead of”? There are many kinds of taxes in my country, which is in the EU. I pay a huge cut of my salary in taxes every month even before I pay VAT on things I buy.
Essential goods have a 6% taxation in my country (Portugal). This also applies to the first 200kw/h you use in your home.
Then there is a 13% for services, like restaurants. I think wine is also taxed thia way.
The higher tier is reserved for non essential items, like cookies, chocolate, fuels (which are technically being double taxed), cars, etc.
We also pay a direct contribution for our social security system (11% over your gross salary, monthly), plus a direct taxation over our overall monthly salary (the minimum wage workers are exempt from this).
The discussiom on these taxes is long, old and boring but it essentially boils down to having those who want something, pay for it.
Your whole post can be summed up as “consumption taxes are regressive but some think they are more fair”
What is the alternative? Asking honestly.
More progressive income taxes like a land value tax would be a great start.
I pay those. I have a plot of land and pay tax on it.
Any other suggestion?
You almost certainly do not unless you are incredibly wealthy and own multiple plots of land . Land Value Taxes are not the same as property tax.
That’s correct. My country does not observe it.
Most countries do not have a LVT because it would hurt the very wealthy as it is taxes on unused land not on your primary home.
Yes, you’re correct: Poorer people spend most of not all of their available on income on everyday goods like groceries, clothes, etc…
Richer people spend (relatively speaking!) less of their available income on these items and save me
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?
Username checks out.
:P
Just to make sure you know: Basically everyone has a VAT, except the US. It’s not some special EU thing.
We have it in Switzerland, Canada has it, Japan has it, China has it, India has it, Russia has it, Brazil has it, Indonesia has it, Australia has it, Ukraine has it, Mexico has it, South Africa has it… I’m stopping here, but every country I googled had it so far.
Doesn’t the US also have local taxes that are effectively the same as a VAT
We have taxes imposed by: -federal government -state government -county and city governments
You probably mean the sales taxes, those look similar from a consumer point of view, but they work differently.
In a VAT system the taxes are collected all along the value addition chain. Each sale of intermediary products has the VAT cost on it, but companies can claim the VAT that they pay for their inputs against the one they collected on their outputs. In effect each company hands over the part of VAT that is raised on their part of the value addition. In the end it all comes from the consumer who buys the final product but doesn’t sell anything onward so they can’t claim their paid VAT against anything. This system determines the end consumer automatically.
In a sales tax system, only the sale to the final end customer is taxed, and intermediary products are not taxed. Intermediary companies must prove to their suppliers that they are not end customers, that they intend to sell things onward, and that they are therefore exempted from sales tax and the supplier does not have to collect sales tax. If that fails, then that means mistakenly a company has to pay sales tax, and then their customer has to pay it again.
Other than that I don’t know enough to compare:
- What is more or less administrative overhead.
- What is more or less open to fraud.
- To what degree this is linked to the existence of a single national or many regional tax rates
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.
Because we let the rich people make the rules.
Because fuck the poor and working class. Don’t forget that they’re double dipping since income is often taken out of your earnings before you even get your money then every single purchase is taxed too.
No, not every purchase is taxed, and not every purchase that is is taxed at the same rate.
These rates are set by individual countries (because “Europe”, lol) and can change year to year. For example Ireland doesn’t tax books, basic food staples, children’s clothes, medicines. Heating fuel is taxed but was set to a reduced rate during the cost of living crisis. Other countries will have different priorities.
VAT ensures that even those who have a large amount of wealth accumulated without “income” also contribute to society.
Don’t forget that they’re double dipping since income is often taken out of your earnings before you even get your money then every single purchase is taxed too.
😭
Because fuck the poor and working class.
I thought EU was very progressive since they often have stuff (like healthcare) much better than the US. Is their “progressiveism” a myth? Am I over-estimating how progressive they are? 🤔
There’s another factor that nobody mentioned: the sales tax in EU countries is different for different products. This allows countries to incentive or disincentivize different classes of products by ramping the sales tax up or down. Higher tax on junk food, cigarettes and/or alcohol, low or nonexistent sales tax for basic ingredients and medicine.
Interestingly, France and the Czech republic tax wine and beer respectively like basic food.
How the fuck you think they pay for healthcare and social programs?
Taxing at point of sale is a weird way to do it.
A better way (in my opinion) is by income, the higher, the higher your tax rate.
A VAT is essentially like a “flat tax” rate, that some politicians in the US are proposing.
We do that too.
Not sure about countries in the EU, but in the UK your income is taxed at different rates depending on how much you earn in a year.
China also uses a VAT and they’re way more progressive than the EU. As far as I know it’s generally worse in both fairness (can’t be used to decrease inequality) and impact to productivity to income tax, but it’s much easier to administer.
Depends how you look at it. Out of my wage, I lose ~50% after taxes and the healthcare system’s “fair share” and, depending on the country, the health system is so under-funded anyway that there’s a heavy incentive to give in and pay private if you want certain operations or some such done anytime in the foreseeable future.
In what way does VAT hurt the poor more than the rich? Considering it’s on each item you buy it clearly impacts the rich more than the poor.
Because VAT is proportional to the item, not the person’s income. From one perspective, yes it’s a fair system but from another, the cost of living is significantly greater for a poor person than a wealthy person. Many are barely scraping by while others are out wining and dining and still getting plenty for free.
I don’t understand what you mean “still getting plenty for free”.
I agree that there shouldn’t be this kind of wealth inequality, and it’s madness that people are starving in countries that are so prosperous, but it’s a little disingenuous to ignore the fact that wealthier people pay more in tax. They’re not getting stuff for free, they’re getting stuff for more than it costs poorer people.
Exactly. I get free healthcare like someone who’s being paid minimum wage (or an unemployed person who has registered as unemployed), but I also pay a significant amount in taxes and for most of my career, that has been money that comes from outside my own country and mostly outside the EU, as I’ve worked for software companies selling their products/services to foreign markets.
Plenty of reason to hate me, but getting free stuff from the gvt isn’t one of them, I pay way more for it.
The thing that comes to mind is Amazon being given brand new warehouses by governments in exchange for barely-humane working conditions. This means, the working stiff has payed for their ability to get a job. Company expansion should come out of that same company’s profit margin, not the back pocket of the working force.
Ah, ok. Sorry, I thought you were referring to well-off ‘ordinary’ people.
Totally agree that the way governments fawn over corporations is beyond the pale.
Understandable and it’s there that things get blurry. I don’t think anyone can argue that Amazon’s bottom line is Bezos but on paper Bezos doesn’t have any money because all of his monetary value is tied up in assets. A person with that much money simply ties everything to their company and suddenly they’re corporate assets instead of personal belongings, thus tax deductible (imagine the Spongebob rainbow meme here) along with the plethora of other advantages these people get just for being wealthy. Heck, this doesn’t even apply to only the insanely wealthy. With a smart accountant, it’s applicable to business owners.
Some years ago I worked for a small company where the owner would declare all of his purchases as business assets. Some of those items would become “loss leaders” and simply “disappear” while others would get “rented” to himself at a “generous discount” until he chose to sell it. I got to learn just how perfectly legal it all was the hard way because by the time I was done at the company, I was looking for the biggest bus I could throw him under and it turned out there weren’t any. Made me want to puke.
Nothing will meaningfully improve until the rich fear for their lives
