VAT is the most evaded, and the most complicated, of all taxes.
I’m not disagreeing with you but I'm not really sure about what is the most evaded tax, although VAT is tax that's very difficult to avoid for consumers. Completely agree that it's complicity is one of it's flaws.
Have you tried reading the Wikipedia documentation on how articles are authored and managed?
Yeah, just try adding some incorrect information to Wikipedia and see how long it last. Wikipedia is a lot more well managed and accurate than people give it credit for. Less credible than a traditional encyclopaedia, a lot more credible than word of mouth, and containing a much greater amount of knowledge.
But isn't that irrelevant? If a millionaire never spends his money but leaves it in the bank won't he have the same living standard as someone on the poverty line (obviously by choice). As soon as he starts to spend then you tax him, like everyone else. Does it really matter if he has lots of paper in the bank?
As you say, it's by their choice they aren't spending the money. At the other end of the scale, the poorest people can't afford to keep savings. At the end of the day, the money is going to be spent somewhere, or it is just paper in the bank, so why tax it when it's spent, under (to me) the less justified method.
Actually what you are proposing is a regressive tax. A regressive tax is one in which people get taxed by a higher percentage when their earnings rise i.e. discourages a more productive life.
Hold on, let me just check Wikipedia...
Sorry, I think Wikipedia agrees with me.
Wikipedia said:
A
regressive tax is a
tax imposed in such a manner that the
tax rate decreases as the amount subject to taxation increases.
[1][2][3][4][5] In simple terms, it imposes a greater burden (relative to resources) on the poor than on the rich.
VAT only is a neutral tax regime as everyone pays the same percentage.
It's neutral in the sense that it costs everyone the same amount, but as a proportion of income, it costs poor people more.
I've asked this question before on this forum & elsewhere, but why should a millionaire who is buying an alarm clock pay a higher rate of VAT (or any tax)? I've never received a credible answer. The only response I've ever got is a sour grapes "because s/he earns more", which doesnt make sense. Taxing people more for working harder or better penalises production which hinders the economy.
It's a very important question and it's not the first time I've been asked it.
In our fairly free economy, people don't earn money based on how hard they work. Firstly, people earn money based on the supply of that type of labour. So low skilled employees (almost can do the job), no matter how hard the person works receive a small wage.
Do highly skilled people work harder to achieve these skills? In some cases, for example doctors or pilots (I assume). But a lot of the time they don't, for example a typical historian compared with a marketing executive.
If you take professions in the public eye for example, take a class of budding actors. 30 people all working to varying degrees. It's not that hard to imagine a film director coming along and picking the star of his next film to be the person he judges to have the most talent out of the class, as opposed to their friend who spends 20 minutes more per day practising.
That person goes on to become famous and ends up earning 100 times what the next highest earning brings in from the class. Even if that person was the most talented, and hard working, they certainly weren't 100 times harder working. It's an extreme example but something you find to a lesser degree everywhere.
A more common type of example; me and my partner. She works night shifts caring for old people in a home. She's paid minimum wage. I once put a website together in two days which made me more money everyday before I woke up in the morning than she made in a 12 hour shift. If half my money was taxed away, it wouldn't affect my quality of life much, if she had a 10% increase in taxes, she'd find it difficult to deal with.
Secondly income is based on the local economy, so someone in London earns more money than someone in... er, Nairobi. Well that's mostly just the luck of where you're born and brought up.
Thirdly... I can't think off the top of my head and this post is long enough.
So in summary, I don't think wages are fairly handed out depending on how hard you work, therefore taxing people more that earn 10 times as much for, say the same amount of time spent working (or even twice as much time working) is justified. That's why regressive tax is bad.
Thanks for your replies. It's good to get this off my chest and discus it with people.