Hugo Papenfus

MAC911

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Tax Systems: Currently we have a mixture of paying tax as you earn and spend.... shouldn't we rather move to pay tax as you spend only?

We have different tax systems over the world, but they mostly tax people on what they earn??? Shouldn't we move to tax systems that tax people only on what they spend? In other words get rid of all other taxes and raise spending taxes like VAT sufficiently. This will have some positive and negative effects. Let's discuss them and see how it weighs up to current tax systems.

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    Aug 25 2011: @Ryan: "....I strongly disagree with your main premise that it would create jobs and "forcefully educate" i was wondering if you could illiterate how you think that is?......"

    I own a business and I know from experience that employers try to hire less and less staff to do more and more. I also rather employ multi purpose personal, like for instance a qualified personal manager that can do some logistics at a satisfying level, or a secretary that can do some basic book keeping.....this also leads to the situation that we are moving to in the world where people with wide range of experience are ranked above people with big degrees.... If I have to pay a person lets say 3000 in salary, I have to pay that person 4000 if the tax is 25%.....thats to make sure the employee gets at least the 3000. When I give a raise I have to consider the next tax bracket for I would have to pay the raise plus the extra tax, otherwise my employee will end up with less after the raise. If we don't tax income, then there is two scenarios......
    1.) the employee gets more salary
    or
    2.) the employer uses the extra to employ more people.

    I would take it that the employer is smarter than the employee so it will probably resolve to no 2.

    This means more employees, so it means creating jobs at the percentage that was income tax........Go and do the exercise and see how proportionate income tax is to not creating jobs???

    Forcefully educate?
    Like you said yourself Ryan, people will buy a little less? I don't totally agree with you unless you add the word "stuff".and "debt"

    You see Ryan, poor people buy stuff and Middle class buy debt. With things being a little more expensive people will start to THINK before they just buy a second blue fishing rod because it looks nice, or the 3 little swallows to hang on the lounge wall, or snow white and the dwarf statues for the garden......STUFF

    The middle class will think before they buy those unnecessary club memberships, extra policies, etc.
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    Aug 19 2011: There is a HUGE difference between being POOR and being HELPLESS......
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    Aug 19 2011: In helping the poor......What is better for the long term? Giving it to them all the time? or educating them to help themselves? Most people like it when they receive something for nothing so they don't educate themselves in working for it. I know you will say that they don't have the opportunities......But they will have it in a VAT only system, as it will dramatically create jobs. It will also forcefully educate......

    At the moment we give them the milk for free, so why would they want to buy the cow???
    • Aug 20 2011: We are definitely not giving them the milk for free.

      Unless, of course, you actually mean milk. Yes we do have enough milk that we can provide that for free for people who can not afford it. We have gotten to a point where we can provide food and (usually in quite unsafe areas) shelter to just about everyone in the united states. We have enough technology and innovation that the things our prior generations spent their entire life working for (food and shelter.)

      This is great, look at the progress we have made as a species.. 200 years ago if there was no rain for a month in your area you would starve and people would die and get very ill, but then again 1 farmer might have been able to raise 3-5 cattle and half an acre of land at a time which would provide enough food for his family and maybe a little extra. Now 1 farmer can raise 30 cattle and farm 100 acres of land providing enough food for potentially thousands of people.

      Maybe in 100 more years we'll have 5 or 10 technicians supervising machines that raise 5,000 cattle and farm 10,000 acres of land, which while killing "jobs" really will just free up all those other would-be farmers to build something new, work less, provide more, who knows what we could achieve as less people get more efficient at providing the basics. Why should those in certain areas or born to the "wrong" parents not reap the benefits of that efficiency? Should they spend 10 hours a day growing their own food when 10 seconds of a big agriculture businesses resources could provide the same amount of food?

      I guess i got off on a rant there but my point is this, we don't breed and milk our own cows because we don't need to, we have technology driven farming to do that job for us so we can invent things like ipods and tvs and phones and cars and planes and everything else in society.

      I strongly disagree with your main premise that it would create jobs and "forcefully educate" i was wondering if you could illiterate how you think that is?
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    Aug 19 2011: On income tax, if someone evades the tax, it's EVADED no second chances........On VAT the product moves a couple of times and so multiple times are available for taxing the product? if someone evades the VAT, it is paid buy another?
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    Aug 19 2011: Another comment by Ryan:

    ".....Lets say that i can build a table in 8 hours, and with the current tax system i have to charge $200 to make a profit and live a sustainable life and that is roughly what people are willing to pay for the table. 20% of that (or $40) goes to taxes leaving me with $160 for supplies, labor, and profit.

    Now lets say the purchaser has to pay all that tax to buy the table, my $200 table just became $240 and people don't want to pay $240 for a table so i can no longer sell them at this price, Now i have to change my price to $160 before the tax to make the total price paid more appealing and the table to be purchasable. The taxes required on the transaction to support the government are still $40, and in order to get that $40 the tax rate on spending must be 25%

    Now everyone's taxes just went up by 25% simply by changing when and how they are paid, instead of paying 20% of income they are paying 25% of purchases, i'd certainly spend less money and that would definitely hurt the people i usually spend my money with, making them much worse off than they currently are....."


    NO......you don't need to pay the VAT at once......The materials bought for the production of the table had VAT, then in selling the table VAT was added again for the pruchaser, so the % can be adjusted because the total VAT that needs to be payd to keep the government budget going can be devided by at least 2, but it should be more since the shop where the materials where bought also got it from somewhere? from the manufacturer/factories of the products...And he got it from the people selling the raw materials for the products....so the shop also paid VAT in the buying of the products?

    So income tax is taken once from a persons income......VAT is taken multiple times of the selling and buying of the same product. governmant can control what can be claimed from VAT just as they control income tax returns......
    • Aug 20 2011: That piece of wood has likely had between 3 and 7 owners before being purchased by the table maker, under our current tax system each one of those owners.. from the tree harvester to each and every middleman and warehouse and wholesale distributors can write their purchase cost and all other business operating costs off and in the end they only pay the 20% tax on their profit, which is calculated post buying and selling where it can be measured accurately either quarterly or annually in the taxes. This allows them the benefit of retrospectively taxing each business based on its profit margins.

      the sales tax would have to be paid at the time of each sale to and from each company involved, well if you took a narrow loss on a product that extra tax you had to pay may make that a huge loss to the point you can't keep your business liquid enough to stay open through the end of the quarter/year where you could in theory get a tax refund from the government.

      Also a thought that just occoured to me is that under such a system every single business and consumer would be required to turn over detailed records of every transaction they make to the government.. that seems like a very intrusive thing to have to give to the government, when currently that is only required on very rare circumstances and only if audited for itemized excemptions for a standard consumer. If i claim a standard deduction on my taxes the government has no right to ask where i spent all my money and i find that thought more pleasant than having to keep detailed records to give them.
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    Aug 19 2011: Let's look at another comment from Ryan:

    "......Spending money is what makes the economy better, this would also discourage spending which ends up hurting everyone's earnings and thus would lower the amount of Gross income everyone receives in the end.. thus you end up with a similar or smaller amount of net income even without earnings taxes and then you are also taxed when you spend that smaller amount of money......."

    Spending money is also the very downfall of the economy as we can see from the HUGE problems facing USA at the moment? And even more so for spending money that you don't actually have......DEBT......

    If you take the taxes that people are paying now, and you add the debt factor to it, you will see that it adds up to more then the % from a VAT only system......The illusion that debt creates at the moment is what you are saying is good for the economy?

    A VAT only system will educate the masses in a forceful way to lean towards saving......This is what we need in the world today......a Saving mentality.....Not just in finances, but in everything, and especially resources......The industrial movement created the illusion around spending and DEBT, and the spending mentality......we all know that we can NOT go on like this.......nothing keeps forever, and we are spending resources faster than we can create it. The natural resources will also deplete in time, and what then? what will we have to spend then????
    • Aug 20 2011: Ok, let's talk about that debt. Lets say we never borrowed any money.

      That borrowed money built factories, roads, schools, products, patents, part of that debt led to research that built out the internet. We would not have any of those things, you wouldn't have a cell phone, because the telecoms wouldn't have had the cash or business model to envision running high speed internet lines across the entire world or monetizing frequency for cell use without the government loaning the money to them or giving them tax breaks to push that innovation. That kid that invented a pivotal part of your flat screen, or satelite, or even that MRI machine that might save your life one day would not have been able to go to school if the government had not provided the security for his bank to loan him that money by loaning it to them with a 100% guarantee.

      We wouldn't have most of the things that were developed in the last 20 years without the government either A. Raising taxes or B. borrowing money that was sitting around being "saved" by someone else.

      A savings account that doesn't invest in someone (like a government or business) is a savings account that actually loses value with inflation.. who wants to save their money in an account that becomes worth LESS as time goes on?

      So, our "debt" is someone else's "profit" and our advancements in technology and achievements are our "prizes", living in a better world that is being made better every day in many different ways
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        Aug 20 2011: everyone who is sane understands when it is feasible for a household to borrow. only when it comes to states, reasoning like yours can be uttered without outrage following it.

        when an ordinary man borrows money, he might do it to start a business, which will generate higher yield than the interest rate. what about the government? can we say that the US invested the money and now reaps profits above the interest rate? or can we say that the US is so better off now that the increased GDP causes increased tax revenues, so paying back the debt is not an issue? where is that profit? where is that GDP increase?

        young couples also borrow money when in need. they sacrifice future joys in order to get a fridge right now, to be able to start a living. it is a conscious decision. one has to be careful though, not to overcommit. but this is the case with the US? the US is ready to give up future consumption in order to get necessary items today? does not seem so.

        what is the most dangerous thing to do when it comes to debt? in my book: borrowing for consumption to bridge the gap between desires and reality. and then borrowing money to pay back the debt that is due. this is the downward spiral everyone knows. just ask anyone in harlem or in kenya, whether it is a good idea to borrow money to get a nice dress, and then borrow more when you need to pay back. we all know that this can only lead to disaster. but when the state does that, everyone is giving us smart talks about how reasonable that is.

        ps: i'm talking about the US here, as you are american. but please feel free to substitute any other country. they all do the same. the state is dumber than any ordinary person.
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          Aug 20 2011: Our debt is not money we want to spend (that's our budget) it's money we have already spent and must be paid back.

          What we do and do not spend money on today (the budget) is based on our ability to decide correctly if we will have the financial resources to pay it back later.

          There are two fundamental activities that together are the most effective way to bring our debt back down to reasonable levels. It is the same strategy that any financial consultant worth their salt would tell you. It is what we do as individuals and as families. The two activities are:

          1. Reduce spending wherever possible and humanely appropriate
          2. Increase income (revenues) iwhereverpossible and humanely appropriate.
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        Aug 21 2011: From your comments I can see that Krisztian and Jim see the point I was trying to make on debt.

        Jim said....
        "....1. Reduce spending wherever possible and humanely appropriate
        2. Increase income (revenues) iwhereverpossible and humanely appropriate......"

        Will this not happen in a VAT only system?
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        Aug 21 2011: I do not agree with you RYAN, as for if they did not borrow to do those things, it might just have been postponed until they had the money to do it....
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        Aug 21 2011: Also, if you buy the fridge now, and pay three times for it over the next three years, isn't it better then to get people into planning mode? If you are going to get married then you know that you will be needing a fridge, so save for it. If you don't buy on debt, you will have three times more in a lifetime than what you can have with debt.....
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    Aug 16 2011: Lets take firstly Ryan's statements......"The problem with pay only taxes are they weigh very disproportionally on the low to mid income classes and this would hurt society as a whole....."

    Let's do this one thought at a time as to make sure we discuss it thoroughly.

    If we have the pay as you spend system, the poor and middle class will also not be taxed on their income, thus giving them more spend. I can see it being a problem with the utmost lowest incomes, but that can be relieved with tax exemptions, or if you think that will influence the the opposite, then we can replace "Exemptions" with "state subsidies" for those basic products. This systems would encourage companies to employ more people? Being an employer myself I know that I keep a minimum employees because of the greatest factor being income tax. I rather employ multi skilled people......one person does 2 jobs..... So many qualified employees does some work that they are not necesarily certified to do, but does it in an acceptable way, like for instance a qualified secretary that does some of the accounting as well for which she does not have the degree. Could this be why more people these days get jobs with their mutli skills than those with degrees? With no income tax it will give me the employer the chance to grow my business exponentially. so it will mean huge job creation? With more people having jobs, it means that there is less weight on government to the upkeep of the poor and unemployed, and less spending towards job creation, so Krisztian, we don't have to necessarily maintain the income of the state at the same level. I can not yet see how it will hurt society as a whole, maybe you can elaborate on that Ryan? As for evading taxes legal or illegal Krisztian, they are doing it at the moment, and people will forever find ways to do it in future.......we might get rid of that some day in the future when we have a money-less system. Tax evasion should be a problem for the applicable authority
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      Aug 16 2011: sure we don't have to maintain that level. i just said VAT only tax has a consequence to cut the central budget in half or something like this. i'm fine with that actually. but it is not possible to convert the current state to VAT only, because it would mean 40-60% VAT, which is completely impossible to collect.

      money-less system will come as soon as man-less system comes. hope never.
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        Aug 17 2011: Why in your opinion would this be impossible to collect?
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          Aug 17 2011: temptation is too high. black market will thrive. in hungary, even 25% VAT is evaded on regular basis. repairman simply asks you whether you want a receipt or not, and if not, price is down 15-25%.
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        Aug 19 2011: Is That the only reason? We are moving towards a "cashless" world.....Will it then still be a problem? And even though the repairman got cash from that deal, he will still use it somewhere? so VAT will be paid somewhere along the line of spending that cash....and the repairman has to buy the materials to do the job? he is paying VAT on that? Like I said, there will be the ones that evade the tax, but lets look at the scenario.....In SA we have 50 mil people......6mil registered for tax.......if we pay VAT only, then 50 mil will pay the tax and not just 6 mil, so the % can be adjusted dramatically, and even though there will still be evaders, the amount of tax payers will offset that....?
  • Aug 15 2011: The problem with pay only taxes are they weigh very disproportionally on the low to mid income classes and this would hurt society as a whole. Not to mention how much more complicated and unfair the exempted items that would be lobbied for would advantage some to the disadvantage of others.

    Spending money is what makes the economy better, this would also discourage spending which ends up hurting everyone's earnings and thus would lower the amount of Gross income everyone receives in the end.. thus you end up with a similar or smaller amount of net income even without earnings taxes and then you are also taxed when you spend that smaller amount of money.

    Lets say that i can build a table in 8 hours, and with the current tax system i have to charge $200 to make a profit and live a sustainable life and that is roughly what people are willing to pay for the table. 20% of that (or $40) goes to taxes leaving me with $160 for supplies, labor, and profit.

    Now lets say the purchaser has to pay all that tax to buy the table, my $200 table just became $240 and people don't want to pay $240 for a table so i can no longer sell them at this price, Now i have to change my price to $160 before the tax to make the total price paid more appealing and the table to be purchasable. The taxes required on the transaction to support the government are still $40, and in order to get that $40 the tax rate on spending must be 25%

    Now everyone's taxes just went up by 25% simply by changing when and how they are paid, instead of paying 20% of income they are paying 25% of purchases, i'd certainly spend less money and that would definitely hurt the people i usually spend my money with, making them much worse off than they currently are.

    In summary, my opinion is that the end result of paying taxes as you spend has almost entirely negative consequences and little to no positive effects. There are a lot of variables i didn't factor but i tried to simply my intent for ease of understanding
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    Aug 15 2011: VAT only taxation has several benefits, but if you try to maintain the level of income for the state, it should be incredibly high. it is not practical, as people will soon start to find ways to evade it, legal or illegal.