I'm open to discussion and amendments to the VATA, whether it be to increase incrementally to the 25% tax, or to have a lower tax on luxury items. The version I just proposed is flexible.
Sterkarm said:My problem with the VAT is that it limits trade, which also limits growth. Free trade allows us to sell goods to other countries at relatively good prices, as compared to the prices we would have to charge if they instituted similar taxes. If this VAT passes, undoubtedly any trading partners of ours would immediately take action, be offended, and charge taxes on our exports to them. Free trade is more profitable in the long run, while VAT provides a short-term monetary boost, but with crippled growth over time. We cannot expect our economy to grow with a policy of massive taxing. Eventually we can start to tax, but not a tax such as this, not a VAT.
Sterkarm said:It is true that I used to be an advocate of the VAT. In fact, I was the one who first proposed it back in Term IX. However, I've realized that a tax and spend policy is not the way to encourage successful economic growth. Lower taxes mean a better economy and over time more revenue for both the people and their government.
As for furs I have no intention about getting into moral debates... with Eutopias moderate oceanic climate most fur is imported and if that import can be compensated with domestic clothing, all the better for Eutopian trade balance. Wear a leather coat instead of a fur one, as long as its Eutopian leather.
Brownbeard said:Investments mean better economy and over time more revenue for the people and their government. Investment can come from two sources: government funds or private savings. VAT targets consumption, not income. If Eutopians choose to consume more, they pay more taxes which government can invest in Eutopian infrastructure and make our economy more competitive. If Eutopians choose to consume less, they pay less taxes which leaves them with more funds on their hands which they may save, and let the banks invest for them, or invest themselves in entrepreneurial ventures or investment funds. VAT does focus on how much a person earns, but how they manage their earnings, sound economic behaviour which leads to higher growth and prosperity is stimulated, while reckless economic behaviour which leads to squandering of national wealth is penalized. In the end it is the choice of every individual, we just set the ground rules.
Erc said:Normally I'd agree with you here--internal taxes usually have absolutely nothing to do with protectionism, as they apply to all products equally (although, of course, in this case, they don't).
If this isn't a protectionist measure, then would you care to explain your prior comments on the bill, Mr. St-Deare?
You've already essentially announced this measure to be protectionist, Mr. St.-Deare. Protectionism is bad for the economy, and, as Mr. Reczysnki pointed out, can lead to trade wars. We already have enough trouble with the fur-producing nations of the world...I don't think we need any more.
Erc said:Investment and saving does encourage economic growth in the long run. I wouldn't deny that. But if that was the aim of this legislation, why didn't you say so in the first place? If our sole purpose here is to encourage national saving and investment, then let's set out to do that. But this is nowhere near the best way to do that. In the end, we might get slightly higher saving and slightly higher economic growth, but at what cost? Economic disaster for the forseeable future.
Growth in the long run is great, and we should encourage it--but, in the long run, we're all dead.
If you want to truly promote national saving, then let's look at some measures which would not upset the balance of the economy as much. How about cutting government spending? Cutting taxes on private investment?
A consumption tax, in and of itself, is not a bad thing. But at the height of an economic recession, slapped onto an already-high income tax? That's madness.
Erc said:But if we want to increase national saving (which is, indeed, a worthy goal), then let's work towards that. A VAT, in principle, is a good idea. It's only the fact that it's in addition to our existing high tax rates that makes it disastrous. So why don't we actually take the initiative here and shift our ridiculously bloated and complex income tax system over to the VAT. Instead of a tax on all income (both from investment and labor), let's just have a tax on consumption only. Rates of, say, 17% or so, with an exemption on the first x ducats to counteract the regressive aspect of the tax...and a gradual shift over to the new system of five years or so, to give the economy some time to adjust.
I'm offering you the chance to actually do something for our economy here, Mr. St-Deare. Do you wish to take it?
Such a transition would leave us highly vulnerable to fund drain. Eutopia would become preferable work place, but consumption would be avoided. People would try to spend their money elsewhere. St. Esprit and Tilapia. Work here, spend there.
Busco said:Would you please explain further the concept of "hybrid tax system"?
You mean reduction of taxes on the citizen balanced by a VAT?
Economy is not my field, but as a start, why don't we try to de-regulate and de-tax to make burocracy and taxation easier on new companies and on companies hiring personnel?
Erc said:Really, how serious of a problem is that going to be? And it's one that is easily remedied. Any labor (not capital) income earned while one is living outside the borders of the UPE is taxed on that income (at the old rates, or at some other rate that we choose), any income earned within is not taxed.
And if you're concerned about people avoiding the tax by heading over the border...well, that's what Customs is for.
Brownbeard said:It is quite simple, we implement VAT, but reduce current income tax and make it more progressive to compensate the tax burden created by VAT.
There seems to be a slight misunderstanding, the scenario I predict is that there would be an increase in employment in border regions, mostly in production, partly foreign labour force, and all shopping would be done across the border. Work in Eutopia, pay no tax, spend in Tilapia or St.Esprit. This would also result to services moving to foreign soil.
As for customs, we cannot implement them, our membership in WTO and CAFTA binds us to free trade with our neighbours. Tariffs and quotas would restrict trade and open us to sanctions from these organisations for violating free trade agreements. We cannot place an iron curtain on our borders.
Busco said:But the problem of people crossing borders will be limited, i don't think many people move miles and miles to buy milk ot televisions...
Uncle Joe said:But that's beside the point. Free Trade does not necessarily effect cross border shopping, but is more meant to protect cross border shipping of goods. For example, a Eutopian lumber company shipping tree trunks to Tilapia can't be charged duties. But a Eutopian crossing the border into Tilapia buying a statue made of tree trunk CAN be charged customs duty upon return.
Any Canadian who's crossed the border for a day long trip to the USA and returned knows this. Although Canada and the USA have a Free Trade Agreement, Canadians still pay duty on stuff they buy in the USA. Exemptions are made based on length of stay. For example a 24 hour stay has no exemptions. A 3-Day stay has a $100 exemption and > 3 day stay has a $300 exemption. Free trade is especially meant for business tariffs.
So, what I'm saying, is that if we pass VAT, cross border shoppers can still be charged VAT upon return. The same way that Tilapians who buy products in Eutopia can claim a VAT refund.