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?
🤔
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.
The rich don’t have to pay taxes. The taxes they pay are largely voluntary.
That is the way of the world. It’s a truism. That’s what happens. You cannot change it.
Bonus extra: the trickle-down theory almost entirely doesn’t exist either. BUT the second generation - the grandchildren - after the original rich person will usually piss almost all of the fortune away.
Second bonus extra: the same thing happened with serious socialism; the leaders become dictators.
Anarchy for the win. 😁
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
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
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.
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.
That tax is reduced for important goods in most countries, like with bread
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
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.
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.
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!
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? 🤔
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.
No, you can only tax the rich so much because a lot of the money is laundered through internationally sanctioned loopholes. There was a plan for that, but then some morons elected Trump so now that’s probably not happening.
But sales tax still works for that, since if you want to buy a Ferrari we’re keeping 20% automatically at the point of sale.
And since rich people tend to spend more money than poor people, sales tax is more regressive than other taxes, but not as much as one would think.
But sales tax still works for that, since if you want to buy a Ferrari we’re keeping 20% automatically at the point of sale.
Unfortunately, that is very easy to circumvent. Rich people usually own companies which made them rich in the first place. They can easily buy cars in the company name and write not just the VAT off, but income taxes as well.
Not really. You have to provide your own business ID in order to not be charged VAT, and they gets noticed and registered.
You’ll have to then explain why the Ferrari, specifically, was a business expense. If the tax administration doesn’t think it’s a good reason, you then have to pay the VAT anyway.
And don’t even get me started on the fucking bureaucratic stupidity that is importation or I’ll have to take my blood pressure medication.
Source: starting up my own business in Finland. Rip 25.5%VAT. Fuck NCP.
Oh here in Estonia you just declare the VAT and you’ll be good. They COULD look up what’s going on, but the Lamborghini Urus I saw registered as “for work driving only” the other day, begs to differ. You can look up vehicle data for all Estonian reg vehicles and oftentimes you’ll see them as being company cars without an exception for private driving (which would cost extra taxes, based on engine power)
That is true with or without VAT. VAT isn’t paid by the buyer, either. It’s the seller that makes the VAT payment.
So sure, the rich asshole may try to write off the Ferrari in their business tax, along with all the other loopholes (good luck with that, too-- I’ve gotten audited for much less), but 20% of that cost still went into taxes because the dealership paid in their VAT every three months like a good boy. That’s the entire point.
VAT dodging is an art and a science for contractors of all stripes and other grey economy actors, but if you’re a standing business like, say, a former Fiat subsidiary with a large worldwide business headquartered in Italy, VAT is the one tax you don’t get to mess with because it’s baked into every invoice.
More like the rich will get even more proficient in tax avoidance
No
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.
It’s just a different implementation of sales tax. Non-European countries in the Global North also have it, including the big one I shall not name, just sometimes under a different form and thus different name.
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
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.
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.
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.
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.
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.
The EU is one of the most progressive regions on Earth, if not the most. That said they’re definitely nowhere close to perfect, as seen from the encrypted messaging fiasco.
