Philbert wrote: ↑Tue Jul 26, 2022 7:48 pm
All good points, but is a VAT better or worse for poor people than a tariff? Genuinely asking because you appear to have given this some thought. Keep in mind also that the regressive nature of VAT is why I suggested using it to replace SS, which is already regressive, not the entire income tax. Also, as I understand it VAT is added at multiple points in the production process, which makes it more palatable but also more convoluted. I would propose adding it all in a chunk at the end point. Otherwise you have to tax imports directly, and one of the features of the idea is avoiding that.
"Also, as I understand it VAT is added at multiple points in the production process, which makes it more palatable but also more convoluted." As far as I am aware (and lord knows I'm not a comparative tax expert) all places with VAT have some kind of input exemption process. You buy 20kg of flour for home use? Pay VAT at point of sale. You buy 20kg of flour for your commercial bakery? Either VAT exempt at POS or you get a VAT exclusion on the sale for the part of the purchase VAT that went into the product. Accounting nightmare afaik, but such is life. This is just a minor point, but putting it 1st b/c it is clearest part.
"All good points, but is a VAT better or worse for poor people than a tariff?" Not sure I have an answer other than it depends on the exact setup. I believe, but may be wrong, that it'd probably end up slightly worse (but you could probably tweak it around). Steps as I see it.
1. We institute a VAT tax set at a level with average consumer spending to bring in the same amount as currently brought in through SS taxes.
2. Prices on all consumer goods rise, but labor costs go down.
3. Some goods have high labor costs, others incredibly low labor costs (example: " In two centuries, the human labor to produce a kilogram of American wheat was reduced from 10 minutes to less than two seconds. This is how our modern world really works." from How the World Really Works: The Science Behind How We Got Here and Where We're Going (did not read book, saw quote going around)).**
4. Labor cost as a share of price of a good is progressive as all get out. Poor people goods have little to almost 0 labor cost (and if they have labor, it's off shored to the cheapest location and/or semi-automated). This is basically Ali Wong's joke about wanting the melon cut by a white guy named Noah, you've gotta be pretty far up the ladder before white people named Noah touch your goods.
5: So I think we've replaced a progressive tax with one that is, on balance, more regressive.
6: However, this would definitely create an incentive to on-shore some labor, especially labor where you want a slightly more educated/engaged work force*** that right now might be marginally viable. So this probably means stuff like pre-built cabinets going from being 50/50 on-shore/off-shore to 60/40 or 70/30. This creates more, probably decent, on-shore jobs. Probably does help to create some lower end on-shore jobs as well.
7: Raising prices of consumer goods will slightly reduce demand, and will shift demand more towards core required goods.
So basically, I'm not sure I can balance out all these factors, and it would super depend on the exact implementation (which industries get exemptions (cuz you know some will)) and such. I think it'd be neutral to slightly negative towards poor people as a whole, but probably a goodly portion of them would get better jobs out of it.
**A common misconception the media makes is that technology increase employment, or is employment neutral. This is a not strictly speaking true on a small scale. You bring in a robot that replaces 10 jobs at a store, 2 people get jobs as robot repair techs, 1 mining job is created, 1 robot building job is created. Everyone else is now out of work with no replacement. For them, this sucks, for society it's great. They are freed up to do other things, but the basic nature of this kind of technological improvement is that more people are always out of work (at 1st) after.
***Just based on the difficultly of translating, communicating and checking up on complicated tasks overseas. Certainly possible (how much high tech stuff is made there? A ton), but for small/medium businesses getting physical objects efficiently made overseas is often a huge hurdle. Custom/Semi-custom orders for example, massive lead time and you have to have some way of checking that they are customizing the correct way and it's not going to be "fuck we don't know what they want, just ship something" and you're fucked when you open the box 8 weeks later.