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What would the consequences be of implementing a 10% VAT tax in the United States per Yang's plan[1]? This seems like an enormous increase in taxes by American

by goles 7y ago

What would the consequences be of implementing a 10% VAT tax in the United States per Yang's plan[1]? This seems like an enormous increase in taxes by American standards. Wouldn't companies just pass this cost on to consumers? https://www.yang2020.com/policies/value-added-tax/ https://www.yang2020.com/policies/value-added-tax/

bit_logic 7y ago
A VAT alone would be bad for consumers. But the VAT is being used to fund a UBI of $1000 per month for everyone. So even the worst case of the full 10% is passed to consumers (and this doesn't happen in other VAT countries, it's usually half the VAT passed to consumers), a consumer would have to spend $120,000 per year in VAT eligible goods (usually essentials like food are excluded) to negate the $1000 per month UBIfunded by the VAT.
- 542458 7y ago
  The VAT+UBI is notably bad for anybody on disability today. Disability today averages around $1200 per month. With Yang’s UBI, you choose between disability and UBI - so most people on disability aren’t getting any more cash. But now they have to pay 10% VAT as well, so they basically see a 10% decrease in buying power. Can’t say I’m a huge fan of that, since UBI often gets touted as a “help the poorest” thing. EDIT: looks like Yang's position on the stuff below changed. His website used to say it wouldn't stack with anything, now it says it stacks with some things, which makes more sense. I'm till not completely convinced though, since the combination of programs that it doesn't stack with can easily exceed the $1000/mo limit that make it regressive again. But there's a complicated analysis there that I'm not qualified to make.
  - chillacy 7y ago
    Disability is an interesting one: many of the former auto workers filed for disability, and the number of applicants keeps going up every year. The number of people receiving disability has increased 5x since 1970: https://www.ssa.gov/policy/docs/statcomps/di_asr/2016/sect01.html https://www.ssa.gov/policy/docs/statcomps/di_asr/2016/sect01... In effect disability ends up being a basic income for former auto workers laid off, which is not what it was intended for. Those on benefits are fearful of losing their benefits for appearing too "able-bodied" and those who legitimately need assistance have to go through appeals proving their disability. One could imagine a better system of UBI for all + additional disability, for those who genuinely are unable to work.
  - Heybud 7y ago
    Not entirely true, straight from his website "You can collect both SSDI and $1,000 a month. Most people who are legally disabled receive both SSDI and SSI. Under the universal basic income, those who are legally disabled would have a choice between collecting SSDI and the $1,000, or collecting SSDI and SSI, whichever is more generous. Even some people who receive more than $1,000 a month in SSI would choose to take the Freedom Dividend because it has no preconditions. Basic income removes these requirements and guarantees an income, regardless of other factors." https://www.yang2020.com/what-is-freedom-dividend-faq/ https://www.yang2020.com/what-is-freedom-dividend-faq/
    - 542458 7y ago
      Hunh - I'm wrong. In my defense, Yang seems to have revised his plan on this - his website used to read "We currently spend between $500 and $600 billion a year on welfare programs, food stamps, disability and the like. This reduces the cost of Universal Basic Income because people already receiving benefits would have a choice but would be ineligible to receive the full $1,000 in addition to current benefits." So it looks like they softened this position at some point? But yeah, that's a much better position than the old one.
- iudqnolq 7y ago
  This sounds like a general statistic. But the more a good is a necessity and the fewer substitutes are available the more of a tax they pay. So it's definitely possible for half the VAT to be passed on to consumers and poorer people to pay more than half the VAT depending on a lot of specifics I don't know.
r00fus 7y ago
VAT are regressive taxes and would impact the poorest the most heavily. That said, the pricing curve doesn't ignore tax, and if the company has to pay tax, then the price will go up, but sometimes not at all because the pricing curve still means passing on all the costs mean lower demand. It depends on the elasticity of demand. Which is why a "flat tax without exception" has downsides. Inelastic demand allows companies to push more/all costs to customer without impacting the pricing curve.
- deleted 7y ago
  [deleted]
- chillacy 7y ago
  Consider the two theoretical choices that Greg Mankiew (economist) supplies: 1. Means Tested Transfer of $1k per month to those with 0 income, phased out progressively by 20 cents per dollar of income. Funded by a progressive income tax: 20% of incomes above $60k. 2. Universal Basic Income: $1k per month to all, funded by 20% flat tax on all income. Which is better? (Answer: they're the same). It's just that choice 2 gives and takes income from all at different times, but the political benefits are enormous. Universal programs are much more resistant to being slashed like the current TANF and SNAP programs. https://taxfoundation.org/universal-basic-income-ubi-means-tested-transfers/ https://taxfoundation.org/universal-basic-income-ubi-means-t...
  - r00fus 7y ago
    Ok, tell me why, if I'm paying for a 20% flat tax, I couldn't be persuaded by future demagogue that my measly $1k/mo isn't worth it if I'm say, paying more in taxes than the $12k annual? The problem comes with the loopholes - cap gains, real estate taxes. Do those fall under flat tax?
    - chillacy 7y ago
      > cap gains, real estate taxes. Do those fall under flat tax? Depends on implementation I suppose. The example given is just a simple illustration that a regressive looking and progressive looking scheme could have the same payouts in theory, they just seem different on the surface. > if I'm paying for a 20% flat tax, I couldn't be persuaded by future demagogue that my measly $1k/mo isn't worth it if I'm say, paying more in taxes than the $12k annual? If you can afford to spend $120k a year on luxury consumables (assuming 100% VAT passthrough) then you're probably savvy enough to figure that out without the demagogue. But there aren't a lot of people with that kind of money. Historically universal programs fare better, Alaska is one example.
maxk42 7y ago
A VAT is a regressive tax inasmuch as the poorest people would end up paying the largest share of their income to the VAT. And yes, in Europe and other places where VAT is used the cost ends up being passed-along to consumers. The other thing that concerns me is the mathematics of paying for UBI with this VAT: US consumer spending is at about $40 trillion annually. [1] That means the VAT raised would be approximately $4 trillion. $4 trillion divided by $12,000 per individual pays for about 333 million people. While that is approximately the population of the US I'm afraid Mr. Yang has forgotten one of the most basic principles of economics: When you tax some behavior you get less of it. I'm afraid consumer spending will drop sharply if his tax plan is implemented, resulting in shortfalls of tax revenue for UBI. A sharp drop in consumer spending would also result in job losses and an economic slowdown that may harm the economy of the US more than any benefit gained from UBI. I'm also afraid that the cost to administer and distribute UBI will be huge and has not been accounted for by these numbers. [1] https://tradingeconomics.com/united-states/consumer-spending https://tradingeconomics.com/united-states/consumer-spending
- wan23 7y ago
  A VAT used solely to pay for UBI is actually progressive, as the UBI can be considered for the purposes of this calculation as a refundable tax credit. Low income household: Income: $30K Spending on taxable goods: $10K VAT Paid: $1K UBI Received: $12K Total Paid: $ -11K (-37% of income) Higher Income Household: Income: $120K Spending on taxable goods: $70K VAT Paid: $7K UBI Received: $12K Total Paid: $ -3K (-2.5% of income) Very high income household: Income: $300K Spending on taxable goods: $150K VAT Paid: $15K UBI Received: $12K Total Paid: $3K (1% of income) Lower income people (who spend less by necessity) end up profiting very nicely relative to their income. The rich, i.e. anyone who spends more than $120K on taxable goods, however, would end up spending more than they receive, and are actually the only people funding the UBI.
  - 542458 7y ago
    The flaw with this analysis is that since the UBI is only claimable if you don’t claim any other welfare, and 1000 a month is significantly less than the average payout from programs like disability, many poor families will be unable to claim the UBI but will still pay the tax this making the whole system regressive at low incomes. EDIT: looks like Yang's position on the stuff below changed. His website used to say it wouldn't stack with anything, now it says it stacks with some things, which makes more sense. I'm till not completely convinced though, since the combination of programs that it doesn't stack with can easily exceed the $1000/mo limit that make it regressive again. But there's a complicated analysis there that I'm not qualified to make.
wahern 7y ago
VAT is the darling child of economic purists (consumption taxes are technically, on paper, the most efficient and least disruptive tax) and Europhiles. I'm immediately suspicious of anybody proposing a VAT. Everything I've heard and read from Europeans is that the VAT system is quite complex. AFAIU, VAT evasion is a serious problem in Europe. The grey market in otherwise legal goods and services is orders of magnitude larger in Europe than in the U.S., and as far as I can tell part of that can be attributable to the complexity of VAT. The other part is the prevalence of organized crime in Europe, but the complexity of VAT in terms of both accounting and enforcement would seem to promote organized evasion. The other problem is that VAT is regressive. You can mitigate that with exceptions on certain consumer goods and services, but that adds complexity. You can also provide direct transfer payments to offset the tax, but "welfare" payments are too politically contentious in the U.S. There's little reason to believe they can be enacted or sustained at an adequate level to realize the potential of a VAT. Ultimately I think it'd simply contribute to increased wealth inequality and cynical, nihilist anti-government sentiment.
- wenc 7y ago
  I'm not sure. Over 166 countries have VATs (not just Europe), also more commonly known as Goods and Services Tax (GST). The U.S. is actually one of the few notable exceptions -- preferring state/sales taxes instead. A VAT like anything can be complicated but does not have to be -- it depends on the implementation. Many countries have figured it out without (many of) the downsides you mentioned. I'm from a country with a GST and it's mostly transparent. Criticisms of a VAT can be found here [1] and they mirror your arguments, but they also provide additional context to guide one's judgment. If read carefully, it's clear the outcomes are varied and dependent on implementation, and does not uniformly result in ill-effects as many would initially suspect. It's actually a tried and true idea -- otherwise countries would be falling over themselves trying to repeal theirs. [1] https://en.wikipedia.org/wiki/Value-added_tax#Criticisms https://en.wikipedia.org/wiki/Value-added_tax#Criticisms
  - wahern 7y ago
    I don't doubt VAT could work, nor that it does work. But we can't compare various small countries to the entirety of the U.S. I'm sure VAT could work well in many U.S. states, too. But the better comparison is with the EU and China, where VAT imposes serious problems. Our existing system also has serious problems, but I'm skeptical that a VAT would prove anything more than a lateral move. Implementing it with the expectation of significantly increased revenue and fairness is definitely too optimistic. Most Obamacare cost mitigation reforms were taken from evidenced-based and theoretically-grounded economic policy research. While some of it has worked well, the dividends have nonetheless been notoriously underwhelming. Which isn't to say they should be rejected, just that we should moderate our expectations regarding applied economic theory. "Neoliberal" has become an epithet in this country precisely because textbook economic theory hasn't played out as well as expected here. Part of it is because the theory was too simplistic at scale, and part of it is because its application in the U.S. is difficult and often impossible--the U.S. has significant political and social problems and attitudes that impede the application of certain kinds of policies. Part of it is that it has worked well, but some policies make for an easier scapegoat than others. Obamacare is again instructive. Nobody doubts, nor is anybody even surprised, that Obamacare needs reform. It was designed with processes to systematize ongoing reform. (One aspect of which was spun as "death panels".) But because of its politicization and our extreme political polarity, constructive, incremental reform has become impossible. Instead we teeter between radical rejection and paralysis. We've become a nation obsessed with radical reform precisely because we're incapable of faithful, consistent application of social policy generally. Technology (VAT is a social technology) won't save us. Our problems are deeper.

by goles 7y ago

bit_logic 7y ago

A VAT alone would be bad for consumers. But the VAT is being used to fund a UBI of $1000 per month for everyone. So even the worst case of the full 10% is passed to consumers (and this doesn't happen in other VAT countries, it's usually half the VAT passed to consumers), a consumer would have to spend $120,000 per year in VAT eligible goods (usually essentials like food are excluded) to negate the $1000 per month UBIfunded by the VAT.

542458 7y ago
The VAT+UBI is notably bad for anybody on disability today. Disability today averages around $1200 per month. With Yang’s UBI, you choose between disability and UBI - so most people on disability aren’t getting any more cash. But now they have to pay 10% VAT as well, so they basically see a 10% decrease in buying power. Can’t say I’m a huge fan of that, since UBI often gets touted as a “help the poorest” thing. EDIT: looks like Yang's position on the stuff below changed. His website used to say it wouldn't stack with anything, now it says it stacks with some things, which makes more sense. I'm till not completely convinced though, since the combination of programs that it doesn't stack with can easily exceed the $1000/mo limit that make it regressive again. But there's a complicated analysis there that I'm not qualified to make.
- chillacy 7y ago
  Disability is an interesting one: many of the former auto workers filed for disability, and the number of applicants keeps going up every year. The number of people receiving disability has increased 5x since 1970: https://www.ssa.gov/policy/docs/statcomps/di_asr/2016/sect01.html https://www.ssa.gov/policy/docs/statcomps/di_asr/2016/sect01... In effect disability ends up being a basic income for former auto workers laid off, which is not what it was intended for. Those on benefits are fearful of losing their benefits for appearing too "able-bodied" and those who legitimately need assistance have to go through appeals proving their disability. One could imagine a better system of UBI for all + additional disability, for those who genuinely are unable to work.
- Heybud 7y ago
  Not entirely true, straight from his website "You can collect both SSDI and $1,000 a month. Most people who are legally disabled receive both SSDI and SSI. Under the universal basic income, those who are legally disabled would have a choice between collecting SSDI and the $1,000, or collecting SSDI and SSI, whichever is more generous. Even some people who receive more than $1,000 a month in SSI would choose to take the Freedom Dividend because it has no preconditions. Basic income removes these requirements and guarantees an income, regardless of other factors." https://www.yang2020.com/what-is-freedom-dividend-faq/ https://www.yang2020.com/what-is-freedom-dividend-faq/
  - 542458 7y ago
    Hunh - I'm wrong. In my defense, Yang seems to have revised his plan on this - his website used to read "We currently spend between $500 and $600 billion a year on welfare programs, food stamps, disability and the like. This reduces the cost of Universal Basic Income because people already receiving benefits would have a choice but would be ineligible to receive the full $1,000 in addition to current benefits." So it looks like they softened this position at some point? But yeah, that's a much better position than the old one.
iudqnolq 7y ago
This sounds like a general statistic. But the more a good is a necessity and the fewer substitutes are available the more of a tax they pay. So it's definitely possible for half the VAT to be passed on to consumers and poorer people to pay more than half the VAT depending on a lot of specifics I don't know.

r00fus 7y ago

VAT are regressive taxes and would impact the poorest the most heavily. That said, the pricing curve doesn't ignore tax, and if the company has to pay tax, then the price will go up, but sometimes not at all because the pricing curve still means passing on all the costs mean lower demand. It depends on the elasticity of demand. Which is why a "flat tax without exception" has downsides. Inelastic demand allows companies to push more/all costs to customer without impacting the pricing curve.

deleted 7y ago
[deleted]
chillacy 7y ago
Consider the two theoretical choices that Greg Mankiew (economist) supplies: 1. Means Tested Transfer of $1k per month to those with 0 income, phased out progressively by 20 cents per dollar of income. Funded by a progressive income tax: 20% of incomes above $60k. 2. Universal Basic Income: $1k per month to all, funded by 20% flat tax on all income. Which is better? (Answer: they're the same). It's just that choice 2 gives and takes income from all at different times, but the political benefits are enormous. Universal programs are much more resistant to being slashed like the current TANF and SNAP programs. https://taxfoundation.org/universal-basic-income-ubi-means-tested-transfers/ https://taxfoundation.org/universal-basic-income-ubi-means-t...
- r00fus 7y ago
  Ok, tell me why, if I'm paying for a 20% flat tax, I couldn't be persuaded by future demagogue that my measly $1k/mo isn't worth it if I'm say, paying more in taxes than the $12k annual? The problem comes with the loopholes - cap gains, real estate taxes. Do those fall under flat tax?
  - chillacy 7y ago
    > cap gains, real estate taxes. Do those fall under flat tax? Depends on implementation I suppose. The example given is just a simple illustration that a regressive looking and progressive looking scheme could have the same payouts in theory, they just seem different on the surface. > if I'm paying for a 20% flat tax, I couldn't be persuaded by future demagogue that my measly $1k/mo isn't worth it if I'm say, paying more in taxes than the $12k annual? If you can afford to spend $120k a year on luxury consumables (assuming 100% VAT passthrough) then you're probably savvy enough to figure that out without the demagogue. But there aren't a lot of people with that kind of money. Historically universal programs fare better, Alaska is one example.

maxk42 7y ago

A VAT is a regressive tax inasmuch as the poorest people would end up paying the largest share of their income to the VAT. And yes, in Europe and other places where VAT is used the cost ends up being passed-along to consumers. The other thing that concerns me is the mathematics of paying for UBI with this VAT: US consumer spending is at about $40 trillion annually. [1] That means the VAT raised would be approximately $4 trillion. $4 trillion divided by $12,000 per individual pays for about 333 million people. While that is approximately the population of the US I'm afraid Mr. Yang has forgotten one of the most basic principles of economics: When you tax some behavior you get less of it. I'm afraid consumer spending will drop sharply if his tax plan is implemented, resulting in shortfalls of tax revenue for UBI. A sharp drop in consumer spending would also result in job losses and an economic slowdown that may harm the economy of the US more than any benefit gained from UBI. I'm also afraid that the cost to administer and distribute UBI will be huge and has not been accounted for by these numbers. [1] https://tradingeconomics.com/united-states/consumer-spending https://tradingeconomics.com/united-states/consumer-spending

wan23 7y ago
A VAT used solely to pay for UBI is actually progressive, as the UBI can be considered for the purposes of this calculation as a refundable tax credit. Low income household: Income: $30K Spending on taxable goods: $10K VAT Paid: $1K UBI Received: $12K Total Paid: $ -11K (-37% of income) Higher Income Household: Income: $120K Spending on taxable goods: $70K VAT Paid: $7K UBI Received: $12K Total Paid: $ -3K (-2.5% of income) Very high income household: Income: $300K Spending on taxable goods: $150K VAT Paid: $15K UBI Received: $12K Total Paid: $3K (1% of income) Lower income people (who spend less by necessity) end up profiting very nicely relative to their income. The rich, i.e. anyone who spends more than $120K on taxable goods, however, would end up spending more than they receive, and are actually the only people funding the UBI.
- 542458 7y ago
  The flaw with this analysis is that since the UBI is only claimable if you don’t claim any other welfare, and 1000 a month is significantly less than the average payout from programs like disability, many poor families will be unable to claim the UBI but will still pay the tax this making the whole system regressive at low incomes. EDIT: looks like Yang's position on the stuff below changed. His website used to say it wouldn't stack with anything, now it says it stacks with some things, which makes more sense. I'm till not completely convinced though, since the combination of programs that it doesn't stack with can easily exceed the $1000/mo limit that make it regressive again. But there's a complicated analysis there that I'm not qualified to make.

wahern 7y ago

VAT is the darling child of economic purists (consumption taxes are technically, on paper, the most efficient and least disruptive tax) and Europhiles. I'm immediately suspicious of anybody proposing a VAT. Everything I've heard and read from Europeans is that the VAT system is quite complex. AFAIU, VAT evasion is a serious problem in Europe. The grey market in otherwise legal goods and services is orders of magnitude larger in Europe than in the U.S., and as far as I can tell part of that can be attributable to the complexity of VAT. The other part is the prevalence of organized crime in Europe, but the complexity of VAT in terms of both accounting and enforcement would seem to promote organized evasion. The other problem is that VAT is regressive. You can mitigate that with exceptions on certain consumer goods and services, but that adds complexity. You can also provide direct transfer payments to offset the tax, but "welfare" payments are too politically contentious in the U.S. There's little reason to believe they can be enacted or sustained at an adequate level to realize the potential of a VAT. Ultimately I think it'd simply contribute to increased wealth inequality and cynical, nihilist anti-government sentiment.

wenc 7y ago
I'm not sure. Over 166 countries have VATs (not just Europe), also more commonly known as Goods and Services Tax (GST). The U.S. is actually one of the few notable exceptions -- preferring state/sales taxes instead. A VAT like anything can be complicated but does not have to be -- it depends on the implementation. Many countries have figured it out without (many of) the downsides you mentioned. I'm from a country with a GST and it's mostly transparent. Criticisms of a VAT can be found here [1] and they mirror your arguments, but they also provide additional context to guide one's judgment. If read carefully, it's clear the outcomes are varied and dependent on implementation, and does not uniformly result in ill-effects as many would initially suspect. It's actually a tried and true idea -- otherwise countries would be falling over themselves trying to repeal theirs. [1] https://en.wikipedia.org/wiki/Value-added_tax#Criticisms https://en.wikipedia.org/wiki/Value-added_tax#Criticisms
- wahern 7y ago
  I don't doubt VAT could work, nor that it does work. But we can't compare various small countries to the entirety of the U.S. I'm sure VAT could work well in many U.S. states, too. But the better comparison is with the EU and China, where VAT imposes serious problems. Our existing system also has serious problems, but I'm skeptical that a VAT would prove anything more than a lateral move. Implementing it with the expectation of significantly increased revenue and fairness is definitely too optimistic. Most Obamacare cost mitigation reforms were taken from evidenced-based and theoretically-grounded economic policy research. While some of it has worked well, the dividends have nonetheless been notoriously underwhelming. Which isn't to say they should be rejected, just that we should moderate our expectations regarding applied economic theory. "Neoliberal" has become an epithet in this country precisely because textbook economic theory hasn't played out as well as expected here. Part of it is because the theory was too simplistic at scale, and part of it is because its application in the U.S. is difficult and often impossible--the U.S. has significant political and social problems and attitudes that impede the application of certain kinds of policies. Part of it is that it has worked well, but some policies make for an easier scapegoat than others. Obamacare is again instructive. Nobody doubts, nor is anybody even surprised, that Obamacare needs reform. It was designed with processes to systematize ongoing reform. (One aspect of which was spun as "death panels".) But because of its politicization and our extreme political polarity, constructive, incremental reform has become impossible. Instead we teeter between radical rejection and paralysis. We've become a nation obsessed with radical reform precisely because we're incapable of faithful, consistent application of social policy generally. Technology (VAT is a social technology) won't save us. Our problems are deeper.