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Sterkarm

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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.

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.
 

Erc

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I drop my objections to the PDRA.

I also drop my objections to EMDA, so long as a clause is explicitly added to add some sort of review mechanism on exports.

As to the VAT...

That is the worst idea ever to grace the halls of this august body since the More Donuts for Police Bill of 2003.

We are in the middle of a deep economic recession; unemployment is at 10%, inflation at 8%. The economy needs every immediate stimulus we can muster to push it out of its rut. What with federal taxes, provincial taxes, state-imposed "insurance," etc. etc. etc., average effective taxes are at about 51%. To impose another tax, another burden on the Eutopian people would be disastrous. The ECB has already projected that inflation (which is pretty high as it is) would increase, undermining what savings the middle class has. With the marked increase in prices, real wages would fall and consumption would decrease. Large businesses would be hurt and many would have to lay off workers. A good number of small businesses, surviving day to day on what profits they have now, would find themselves wiped out. Unemployment increases, and we're thrown into a deeper recession. And all for what? To straighten out the deficit. Hey, I'd like to balance the budget as much as anyone else here--but during a time of recession, sometimes it's necessary to have a little deficit to get us out of it. Not that this tax will help the budget that much anyway...with increased unemployment, income tax returns are going to go down as well--our budget will be better off, but not nearly by as much as one would think.

If we really want a balanced budget, why not try cutting some of the wasteful spending that bloats our yearly budget, instead of foisting yet another tax hike on the taxpayers of Eutopia.

I know what you're thinking, Mr. Good Socialist in the corner. He's gone off talking about taxpayers again...and we all know what that means in the mouth of a reactionary like Professor Talbott, don't we? He's talking about the top 5% of the country, those evil capitalist pigdogs...

Not at all. The ones who are going to be most affected by this tax are the working and middle classes--most of their spending goes to consumption anyway, so it's essentially slapping another 6-10% tax on them. While the wealthy, who save a good deal more of their money anyway, will pay much less of their income in VAT. You know what that makes this? A regressive tax. It hurts the poor and the workers, the undertrodden masses whom the Socialists always valiantly protect. Not the rich.

But what about the luxury tax? That's got to hurt the rich? Right?

Wrong. Despite your best efforts, you fail here, again. Prices on sailboats, fur coats, etc. skyrocket? Well, the rich will just stop buying them. They'll buy something else...or they'll just put their money in the bank. They won't mind too much...but what about the furriers, the jewelers, the builders of yachts? With demand for their goods in the tank, they'll go out of business and take their workers with them. It's the workers who are affected, not the rich.

The economy will tank, wages will fall, inflation will increase, the rich will get richer, and the poor will get poorer.

Kudos to the Socialists for yet another magnificent effort.
 

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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.

Mr. Reczynski, there seems to be some fundamental misunderstanding about the nature of VAT taxation. In no way does it limit or strain international trade. VAT targets all products bought by the final consumer on the Eutopian market equally regardless of their origin.

How does this affect specific situations:

Domestic consumption:
Domestic production:
Eutopian product bought by a final consumer: Basic price + VAT
Eutopian product used in productive process: Basic price

Imports:
Foreign product bought by a final consumer: Basic price + VAT
Foreign product used in productive process: Basic price

As you can see, under no way does VAT discriminate or limit foreign trade. In no way does it violate free trade agreements or WTO standards.

Exports: Exported Eutopian products and services are not affected by Eutopian VAT but by VAT tax system of their target markets, under the same rules as both their domestic products and imports from other places of origin.

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.

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

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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?

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.

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

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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.

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.

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?
 

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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.

In a way it is protectionist, but in no way violates WTO and free trade regulations... now, I must admit, you have caught me off guard... what secret fur lobby threatenes Eutopian welfare? Will any country even register it, and will it be plausible enough to provoke a reaction. I think not.
 

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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.

I believe you overestimate the problems in Eutopian economy, although the indicators look grim, Eutopia is still far away from deep recession, and change is neccessary, new investments to spur growth. As for cutting government spending, it needs to be restructured, with more spending on investments and less on less useful things. The horrors of the recent terrorist act showed that threats do not come from outside, but from within, and instead of spending millions on heavy weaponry, we should have focused on training, counter-intelligence and personnel. We could have done more with less. Restructuring the defense budget might provide us with a higher quality anti-terrorist defense and more room for investments.

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.

Since VAT targets the final user in a way he is not even aware he is taxed(as part of the price he pays for goods and services). It would be near impossible to manage a tax exemption based on value. Only on product type.

As a conclusion, a hybrid tax system might be the most preferable solution, I am willing to support a reduction in income taxes to correct the pressure new taxation would create on the Eutopian citizen.
 

unmerged(24047)

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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?
 

unmerged(38484)

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I know I've been kinda quiet in the GA, but I've never been opposed to the idea of a VATA and I'm not now. A flat 10 or 15 percent rate would be an acceptable option to me, or an incremental build towards 20 or 25 percent. Given that we've just suffered some domestic crisis, a boost in intelligence and military budget is needful.
 

Erc

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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.

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.
 

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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?

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.

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.

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.
 

Erc

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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.

If you're concerned about people living and spending in St. Espirit while working here, then we can implement the solution I suggested.

If you're concerned about people working here and living here but crossing the border to buy goods...then the problem exists equally in your plan and mine. Any VAT will result in people crossing the border to buy goods.

Since you're so insistent that any VAT will have large effects on our trade situation with St. Espirit at the very least, why don't we send (by means of CAFTA if you wish) a delegation to St. Espirit to discuss the implications of such legislation? If we can convince St. Espirit to enact similar policies, then we won't have this problem anymore.

Since we seem to be the most interested in this legislation, why don't the two of us head down to St. Espirit and chat it up a bit with their parliamentary leaders...see how amenable they are to implementing a VAT in their own country. If they aren't, nothing changes. If they are, our problem is solved.
 
Last edited:

unmerged(24047)

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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...
 

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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...

Thank you for reintroducing some sense into this discussion, Major.

This minor little point has really been inflated way too much over the past few days and has diverted us entirely from the matter at hand.

For the sake of clarity, I am going to repeat our President's statements on the matter, who expressed what I was essentially trying to say the first time much clearer than I ever could have.

Imagine me, agreeing with Uncle Joe...my goodness, it's like the Term V debates all over again...

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.

So, with this little matter put behind us, I would like to again propose to Mr. St-Deare and the other members of this august body...what say you to conducting real economic reform and encouraging real economic growth? Not just a simple slapped-on VAT, but an abandonment of our current bloated income tax system and a gradual shift of our tax structure to the VAT entirely.
 

unmerged(24047)

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I thought about the whole problem a lot.
We need new infrastructures, modernization in many fields, but to do this we need money. And we can't flee from this key factor.
The easiest way is the VAT. I think that the whole problem about this kind of taxation is making the population aware of what this will mean. The impact on basic needs like food and such won't be deadly. The less wealthy parts of the pupulation won't suffer much from that.
I suppose that if even a prominent member of the CUE (and of the Eutopian politics) like Prof. Talbott agrees on the opportunity of a VAT, we should not miss the chance.

I have to admit that on the first time the VAT was put to vote, i abstained. I think that after much consideration, i would cast a positive vote on a new VAT.
 

unmerged(36605)

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I'm glad so many Eutopians have gotten involved in the discussion of the VATA. I've heard a lot of suggestions and criticisms. Here are the changes that people want made as I see them:

1. Explicitly stated exceptions for things needed for industry and work
2. Make a VATA rebate to people at the lower end of the income scale
3. Flat tax rate or incremental increase

Any others? Now how does everyone feel about these points?
 

unmerged(10397)

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O'Floinn stands up during the lapse in discussion.

Gentlemen, I hate to interrupt the debate on the VATA, but I've noticed a complete lack of opposition to the PDRA. If no one objects, I'd like to put it to a vote.

Also, the MIDA has become concerned with our safety, and has provided a bullet-proof vest for each of us. If you wish to pick one up, stop by my office.
 

unmerged(24047)

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I really can't see the point of the PDRA...we have much greater problems to discuss, but someone proposed that, let's vote it...
 

unmerged(10397)

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We do have greater issues, Per McGrath, which is exactly why I would like to move the PDRA through now, so we can focus on more pressing matters.

Just out of curiosity, aside from the VATA, what greater problems are you referencing? There hasn't been any discussion on anything else in quite some time.