Comments on: What role do we want VAT to pay in our tax system?

By: James Plunkett

James Plunkett — Tue, 23 Aug 2011 11:14:08 +0000

Mark – yes, VAT is regressive when when judged on its own – but the overall regressivity of a VAT increase depends on how you spend the money it raises. If you spend the money in a progressive way (for example, on early years), you can (fairly easily) net out the regressive impacts of the tax itself and have an overall progressive impact. In general, spending does more redistribution than tax – so, overall, the left should worry more about how money is spent (and raised in a way that is efficient, sustainable and wins consensus) and less about the distributional impacts of tax moves.

By: Mark Whitenstall

Mark Whitenstall — Wed, 03 Aug 2011 17:56:28 +0000

Sorry, did anyone read that IFS study? VAT is regreesive, becasue the poor spend more as a proportion of income, and thus judging regressivity by proportion of expenditure on tax is a flawed model. The graph showing income proportions is much more accurate.

Seriously, I expect better than this.

By: Gareth Jones

Gareth Jones — Tue, 19 Jul 2011 11:55:13 +0000

http://tinyurl.com/3plnq9e What role do we want VAT to pay in our #tax system? #uk #eu #economy

By: StephenHenderson

StephenHenderson — Tue, 19 Jul 2011 09:11:24 +0000

I think people above make valid points. I would add..
1. It is probably politically more difficult to garner support to increase spending than to progressively ameliorate taxation (in the UK at least).
2. Apart from arguments over ‘progressiveness’ there is also the issue of the burden of VAT displacing business taxes onto consumers (often benefiting financial and low investment business most). As taxation of business become more and more fraught the HMRC strategy seesm to be to tax consumers more and more to compensate.
3. Most importantly I question the whole analysis of the IFS that VAT is not regressive this relies on a highly dubious argument of ‘consumption smoothing’- basically the idea that rich people will eventually pay the VAT at some point during their lifetime???? To which I say ‘in the longrun we are all dead’ and no the rich will invest their money in property, spend it on non VAT payable things like school fees, student loans, and pass the cash to their children. So I think the IFS analysis is “fishy”.

By: Mr. Sensible

Mr. Sensible — Mon, 18 Jul 2011 21:46:32 +0000

Interesting article.

The thing in this particular case is that the VAT increase is not to increase spending, nor is it to cut the deficit as the Coalition claims; it is to pay for tax cuts elsewhere, such as Corporation Tax and freezing Council Tax, which I see as rather regressive.

By: Leon Wolfson

Leon Wolfson — Mon, 18 Jul 2011 20:33:53 +0000

“More uniform”? That means, what, VAT on food? Because I can guarantee that the poor won’t get ANY sort of compensation for that under this government, the amount they can afford to eat will just plummet.

The reason I support a call for a VAT cut is it’s one of the few things which I can actually imagine this government *doing* to help the poorer people in society and getting the economy working again. Not because I think it’s a good idea overall.

By: David Flisher

David Flisher — Mon, 18 Jul 2011 18:38:38 +0000

At the least return VAT to 1970s levels, prior to the Thatcher hike, with the clear aim of ridding us of its regressive presence.

By: Stephen W

Stephen W — Mon, 18 Jul 2011 17:25:41 +0000

To add to the point made by the article. As the IFS says, if you want your tax system to be progressive this does not mean that each individual tax has to be progressive, just that the system as a whole does.

VAT can be a very economically efficient tax. We should allow it to do this, make VAT more unfiform and make income tax even more progressive to compensate.

By: Duncan Stott

Duncan Stott — Mon, 18 Jul 2011 16:31:37 +0000

Very interesting.

But just because other countries do their redistribution through spending, doesn’t mean that the taxation system can’t be progressive. Can’t we have it both ways?

By: Michael

Michael — Mon, 18 Jul 2011 15:34:17 +0000

What role do we want VAT to pay in our tax system? l Left Foot Forward – http://j.mp/qbg3hn