January 5, 2011

WE ARE ALL NEOCONOMISTS NOW:

Consumption tax increases discourage consumerism; work tax increases discourage work. Shouldn't we welcome the shift to VAT? (Tony Curzon Price, 4 January 2011, OpenDemocracy)

Fine. VAT is almost certainly regressive, and certainly less progressive than income tax. So naturally, perhaps, Alan Johnson (also interviewed – much more fumblingly than Osborne – this morning by Evan Davis), argued for a work tax (National Insurance Contributions) rise rather than a consumption tax rise (and asked for it to be phased in more slowly). NICs are paid as a percentage of earnings up to a maximum, and so more or less share the classic progressivity of income tax.

But there is something odd in Labour's attitude. Tax systems should do two things: they should encourage activities we want to promote and they should provide revenue for activities we want to commonly engage in, including redistribution. So VAT looks like a tax on consumerism, while NICs looks like a tax on work. So why shouldn't we want to use the tax system to discourage consumption (especially of goods that are not considered necessities, which in the UK are zero rated) and encourage work?


Tax what you don't want, not what you do.

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Posted by Orrin Judd at January 5, 2011 7:35 AM
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