Direct or Indirect Taxation

[rov1200]

The government considered raising the VAT rate to 18.5% in 2010/11. The budget proposes a reduction of VAT by 2% where each 1% is worth �6 billion pounds.

Rather than putting personal taxes on individuals which may lead to dis-satisfaction and emigration of our highest paid professional staff why do we not use VAT as a means of raising revenue? The higher earners would still provide most of the taxation wouldn't they?

[Ethel]

It makes the goods proportionately far more expensive for the lower earners and non-earners, thereby putting a greater tax burden on those sectors of society.

Although the higher earners would presumably be spending far more, and so paying more in tax, it would increase the amount of tax paid as a percentage of overall income on the poorer sectors.

[rov1200]

But don't the government have methods of equalizing other tax rates. ie Now because of personal allowances those earning as little as approx �6000 start to pay tax. Also food and clothing are VAT free.

[Lonnie]

There's only one person that really pays VAT, and thats the consumer, us.

They say Labour did consider it. Withj this goverments record, come 2011, if they are still in power, you can bet it'll happen.

[jake-the-peg]

No I don't think that's the case Lonnie.

Governments consider doing all sorts of things - would you rather they didn't consider all the options and just went with the first thing they thought of?

They've already been pretty up front with the proposed increase in taxation for higher earners in 2011 and if they were going to do it it would make political sense to say we're dropping VAT for 2 years to stimulate growth and then put it up for 2 years to pay it back.

It has a symetry and logic that'd appeal to people.

Thing is though VAT encourages people to save rather than spend putting it up during a recession is a bad idea

[Lonnie]

I agree jake, Goverments do have to consider all options, its just that I have a pathological distrust of this goverment.

I can remember all goverments back to Churchills last, and i really don't think there's been such an untrustworthy one as this present one, that also includes Blairs time as Premier.

[jake-the-peg]

As a matter of interest what are your specific reasons?

[weecalf]

Was it leeked so as to gauge the public reaction and more importnt the money people reaction .This rise in vat if its to believed will be discussed by the media and those in the know and the goverment wil be able to find out all it needs to know by letting float an idea .If it goes down well ,then it a brillant idea if not it will be denied five or six times then brought in anyway ...

[jake-the-peg]

Do you have a direct line to no 10 weecalf?

Or is your insight simply springing from cynicism?

[nedflanders]

Lets be in no doubt taxes will rise one way or another once the economy recovers, either in income tax or VAT, i am not too concerned about this as i will be happy as long as i still have a job during the downturn. I am quite pleased with the way labour is handling this crisis.

I'd rather have darling and brown during these times than osbourne and cameron who still try and blame the credit crunch on Brown!

[Gromit]

There were two options on the table, both had the same aim, to stimulate the the public into buying.

The idea of the VAT increase was so that shops could say "Buy now before the VAT increase" and that would get people spending again.

There was a debate within the treasury, and it was decided a decrease would stimulate the economy better than an increase.

The change in tax rate for high earners is mostly political rather than a serious money making exercise. It will only affect 1% of the population, which will please the other 99%. The rise is from 40%. In the 1980s the rate was 60%. High earners will not emigrate for tax reasons. People making large amounts of money employ accounts to find legal means of reducing their tax burden.

As has already been said, VAT hits the poor proportionally greater. As there are more people on lower wages than high wages, raising the many billions needed to pay back the Government's large borrowing from higher and higher VAT would be very unpopular, especially with an election in two years time.

[anotheoldgit]

The government considered raising the VAT rate to 18.5% in 2010/11.

When challenged about this in the House by the shadow chancellor, the chancellor stated that he had not signed this paper, and that when he asked his department who had signed it no one knew.

http://news.sky.com/skynews/Home/Politics/Pre- Budget-Report-Leaked-Document-Shows-Labour-Pla ns-To-Raise-VAT-After-Next-Election-Tories-Cla im/Article/200811415161777?lpos=Politics_First _Home_Article_Teaser_Region_9&lid=ARTICLE_1516 1777_Pre-Budget_Report%3A_Leaked_Document_Show s_Labour_Plans_To_Raise_VAT_After_Next_Electio n%2C_Tories_Claim

Typical New Labour, they are a laughing stock.

[rov1200]

Of all the different means of taxation I believe that VAT is the fairest for all individuals. It is a tax on consumption. If it encourages us to save then our overblown consumer society would be curtailed. As was pointed out above if the rich cats have ways of avoiding income tax then whats the point. The poor have other means of not losing out by tax breaks.

Personally I would like VAT to be levied proportionally. Higher VAT rates for jewellry, cars and other luxury items and lower rates for essentials. We already do this for heating oil.

[luxury]

18.5% seems reasonable compared to other EU rates....

http://www.tmf-vat.com/home.php?pageid=99&menu id=375&langid=1

Have those countries fared better in the 'credit crunch?'

Income tax worries me a lot more lol

[Octavius]

It seems obvious to many that the Governments attempts to stimulate the economy through the Ricardian Equivalence will not hold in reality. Where the government spends its money has significant effects on all markets.

The proposals are smoke and mirrors for future hikes/cuts to pay off the national debt. It seems the government are banking on the other side taking over in the future, when tax increases are inevitably required and public spending is cut in the future to pay off the debt, the government of the time will be ever so popular. Unless it is them, and they will no doubt effect some other stealth tax to compensate fiscal incompetence.

[anotheoldgit]

Have those countries fared better in the 'credit crunch?'

luxury, has hit on a question I have also been asking myself.

Daily we are bombarded with all the doom and gloom of what is happening in Britain & America, but we hear little if anything of how the ordinary person in say Germany, France or Spain, are riding out the storm.

Is this information kept from us for the good of our moral.

One never knows, they may be coping very well. thank you very much.

[luxury]

Bleak AOG.... Bleak....

http://ec.europa.eu/economy_finance/thematic_a rticles/article13288_en.htm

Latvia in the minus....

http://www.ft.com/cms/s/0/3353c6e6-bad2-11dd-b c6c-0000779fd18c.html?nclick_check=1

[rov1200]

Interestingly when purchase tax was in place of VAT there was a higher rate for things such as fur coats (which are not worn today) jewellry and other luxury items were charged at an exhorbitant rate but the rich flaunted their wealth and were content in paying higher rates.

Those tables above show the Swiss (who are not in the EU) charging increduably low rates approx 6% VAT. How do they do it when things are so costly there?

High tax rates only encourage the entreprenaurs to go abroad as if they don't already. Maybe they should be charged on whether they hold a British passport not from where they take up residence abroad. Its a sham at the moment!