Sunday, April 18, 2010

The VAT is not the only simple consumption based tax

In a post on Friday Bruce Bartlett wrote:
That being the case, it makes sense to raise those revenues, which will be raised in any event, in a way that is least damaging to the economy. Hundreds of years of analysis show that a broad-based tax on consumption is the best way to do that and a VAT is simply the best form of such tax ever invented.

No economist I know of denies this.
Well, then Mr. Bartlett doesn't know of many economists, or a very wide range.

First, the vast majority of economists expert in this area (real economists with PhDs) will tell you that the least economically harmful way to tax is to tax negative externalities and activities, like pollution and cigarettes. Here the harm from the tax is negative. The tax does good in addition to raising money; it increases efficiency and total societal utility. Here's an example of an obscure economist few have heard of speaking in favor of externalities taxes, Nobel Prize winner Paul Krugman.

Second, many economist don't like that the VAT, unlike the income tax, is completely unprogressive. And you just absolutely don't have to be unprogressive to have a tax that is consumption based and simple. This can be done with a straightforward direct consumption tax, as explained by another obscure economist, New York Times Economic View columnist and Cornell professor, Robert H. Frank. In a 1999 Washington Post Op-Ed Frank wrote:
...We can do this in a powerful yet unintrusive way by scrapping our current income tax in favor of a more steeply progressive consumption tax. Such a tax would be straightforward to administer: Each family would pay tax not on its income, but on its total spending--as measured by the simple difference between its annual income and its annual savings.
And precisely because this tax is (steeply) progressive, it also accomplishes point 1: It increases efficiency by taxing externality costs, chiefly those of the colossal positional/context/prestige externalities. In fact, this is the key point Frank makes in the Op-Ed I cite above. Mr. Bartlett, if you really are open minded as you say, then you should read it.

For more on taxation, I suggest starting here.

18 comments:

Finance Dissertation Help said...

Whenever i see the post like your's i feel that there are still helpful people who share information for the help of others, it must be helpful for other's. thanx and good job.

Finance Dissertation Proposal

Min said...

Bruce Bartlett: "That being the case, it makes sense to raise those revenues, which will be raised in any event, in a way that is least damaging to the economy."

Isn't property tax the least damaging tax? Other taxes have deadweight costs, right? They discourage economic activity. But a property tax encourages economic activity, in order to pay the tax. And, unlike a poll tax, property tax is related to the ability to pay. Those who have more pay more.

Richard H. Serlin said...

Min,

There are a lot of taxes that in fact have positive effects on top of raising revenue for worthwhile government activities (police, fire fighting, etc., etc.), and high return investments that the free market will underprovide due to long established in economics market problems (like education, basic science, etc., etc.).

The estate tax is also certainly an incentive to work harder, for rich heirs and heiresses. But I would guess that pollution taxes are the least damaging, actually negatively damaging; they do a tremendous amount of good and create great efficiency in not wasting the planet frivolously because the private company and the customer don't pay the great costs they incur on others.

VAT in UAE said...

Nice post, your post is knowledge for all readers regarding VAT study. Get detailed knowledge about VAT implementation in UAE.

Know about VAT implementation and its impacts in UAE

kgrnaudit said...

I believe there are many more pleasurable opportunities ahead for individuals that looked at your site.offshore company formation in dubai

kgrnaudit said...

Some us know all relating to the compelling medium you present powerful steps on this blog and therefore strongly encourage contribution from other ones on this subject while our own child is truly discovering a great deal. Have fun with the remaining portion of the year.buy business in india

Anonymous said...

Its very crucial for a business owner to get debt consolidation loans UAE for better results.

Anonymous said...

Many Private Bank in UAE and Open a Saving account. But the mashreq Bank is the best Bank For account opening.

SIyad said...

Nice Blog, Thanks for sharing

auditing company in uae

Anonymous said...

Interesting article. I have bookmarked your site for future reference. Please check my latest post on the audit services and let me know what you think.

yanmaneee said...

supreme clothing
yeezy supply
jordan shoes
yeezy 350
lebron 16
bape
curry 7
off white nike
hermes handbags
golden goose outlet

Tax consultant in Dubai said...

As a Professional in vat registration services, providing accounting, auditing and taxation services affordably, I am sure this will help you.

Spider Business Center said...

The Estidama Dubai or Sustainability contract is essentially a virtual office. You get a fully lease agreement for the company and this enables you to obtain your Trade Licence. This agreement also enables you to get up to 4 employment visa/labour quota against this space.

Spider Business Center said...

Get your E-Commerce License in Dubai With Company Setup Consultants and start your online Business in uae. So, what are you waiting for? Contact us today.

banerpunep said...

Its really appealing and approaching content for reading and implementation purpose.
accounting software uae

Elate Soft said...

great and approaching content for blogging purpose.
ERP Software Dubai

deteigh said...

f4i09y0d00 y9n28m6i02 z7j24o5v81 m3s75s4h92 c5r09q6j02 g4n21o9z77

Big Bracket UAE said...

Very informative post. Thanks for sharing for us. Looking for Accounting, Book keeping, Auditing, VAT Services in dubai, Visit this page