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That won't work. Watch the trends in the states regarding "streamlined" sales tax to see the problem (ok, maybe it's "streamlined" for legislators because they

That won't work. Watch the trends in the states regarding "streamlined" sales tax to see the problem (ok, maybe it's "streamlined" for legislators because they don't define tax categories). Also I have done enough sales tax compliance work in other countries to have stories you won't believe. For example this one is pre-HST in Ontario, CA and so I don't know if it changed when HST was accepted, but before HST, the question of whether provincial sales tax (PST) was applied to a muffin you buy at a coffee shop depended on what else you purchased and some other factors. The rules were as follows: If the muffin is not individually wrapped and you buy fewer than six then it is taxable if and only if the subtotal of the muffin and any other prepared foods and beverages purchased is greater than $4 Canadian. On the other hand, if the muffin is individually wrapped, then it is always subject to PST.... unless the customer also purchases another item of prepared food or drink and the subtotal is less than $4 Canadian. Here's the problem as I see it: We all have to file income taxes. Only businesses have to file VAT. What this means in political terms is that if you annoy the population enough regarding filing, they will vote out folks in office and vote in people promising to simplify things (see Reagan-era income tax simplification). On the other VAT and sales tax are only reported by businesses. You still have all the incentives to make policy by controlling tax rates. However most people don't fill out the returns. Moreover big businesses can afford to do whatever they need to in order to fill out the returns, but smaller businesses will struggle. I will say that in my experience very few small brick-and-mortar businesses that do delivery of goods even make any attempt at being compliant with "streamlined" sales tax laws (where typically you have to report per tax jurisdiction goods are delivered to). Consequently it becomes another formal barrier to entry, another regulation that small businesses ignore because they have to, and another one that allows governments to adopt a "show me the man and I'll find you the crime" approach. Sales taxes tend towards greater complexity than personal income taxes. Additionally if you mandate that VAT is built into the prices, you create a perfect way of hiding that complexity from the average voter. Hence I see that as a very, very bad idea.

leot 14y ago
You seem to be saying that, with VAT, the devil is in the details, not that it is necessarily bad. The fact that many countries use a VAT, and it works fine (with much higher compliance than income taxes, e.g.), suggests that it's possible to implement VATs better. Note that a VAT works differently from a sales tax, in that the retailer is strongly motivated to comply, because they get a refund for everything they have paid for the incoming goods.
- rdl 14y ago
  Economists do widely (universally?) agree that VATs have the lowest inefficiency (deadweight loss) of any form of taxation, and are thus the most efficient (not necessarily most fair, which isn't an economic question. You can solve a lot of the fairness/regressivity issues with VAT through some kind of blanket, potentially refundable per capita credit). I dislike VATs philosophically due to the massive data they collect and turn over to the government, and how they open up a lot of activities to regulation, but in practice, they do seem to be a superior option.

leot 14y ago

You seem to be saying that, with VAT, the devil is in the details, not that it is necessarily bad. The fact that many countries use a VAT, and it works fine (with much higher compliance than income taxes, e.g.), suggests that it's possible to implement VATs better. Note that a VAT works differently from a sales tax, in that the retailer is strongly motivated to comply, because they get a refund for everything they have paid for the incoming goods.

rdl 14y ago
Economists do widely (universally?) agree that VATs have the lowest inefficiency (deadweight loss) of any form of taxation, and are thus the most efficient (not necessarily most fair, which isn't an economic question. You can solve a lot of the fairness/regressivity issues with VAT through some kind of blanket, potentially refundable per capita credit). I dislike VATs philosophically due to the massive data they collect and turn over to the government, and how they open up a lot of activities to regulation, but in practice, they do seem to be a superior option.