People don't look at tax cuts right Watch

Jammy Duel
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#1
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People haven't forgotten about the VAT rise to 20%, it came up in PMQs today and Osborne was questioned yesterday about it, but people who want it togo back down to 17.5%, in my opinion, are generally delusional, the same goes for the people that want some of the products (including tampons which seems to be the most popular one for complaint) in the 5% VAT band to shift to the nil rate band. They only look at the tax rate and don't bother considering what would actually happen after the change, that is, nothing, well, not quite nothing.

What people seem to assume is that if the rate is cut then so will the price which is questionable, definitely in the short term (as it might be that in the longer term the prices go up slightly slower given the higher margins, but personally I am skeptical of this). In the case of the tampons it would represent a decrease in price just shy of 10p on your standard £2 pack. Similarly, a reduction of VAT from 20% back to 17.5% would be a cut of about 2% in prices if it were to be passed on. Except, the cut would probably, in the vast majority of cases, not be passed on to the consumer, but instead pocketed by the corporations (and many of the people who want these cuts would hate that). I'm also inclined to believe that it would still happen, at least partially, if VAT were reduced all the way back to 15%

Now, let's have a look at the cost of these cuts (i.e. the damage to services that would be provided, or alternatively how much lower a surplus would be if we had one), as calculated in another thread, a rough upper limit for the tampons would be in the region of £50m, while it doesn't sound a great deal that's what, getting on for a thousand doctors, say? Of course, the big one is VAT. For 2014-15 the net VAT receipts collected by the exchequer was estimated in the budget to be £111bn, a 2.5% cut to VAT would have reduced that figure by about £13.875bn.

So people want to cut government funding of £14bn+ and have to face further austerity (ironically the people who hate austerity in many cases) so they can put more money in the hands of corporations. Okay, let's be fair, some of that money being handed to the corporations will be taxed, let's just assume that the increased wages to managers and various ways to reduce the tax charged (whether it be 100% above board in the eyes of the public, avoidance, or evasion) balance out so it's a flat 20%, that brings us down to about £11bn loss.

What people should really want for their tax cuts is not in indirect taxation, but in direct taxation. Reduced council tax, reduced income tax rates, increased tax free allowance etc.




Actually, while here, let's take a look at reduced tax on alcohol from this budget. A 1p cut in beer duty translates to about £76m reduced tax take, again, this goes to the pubs and brewers, not the drinker. (Annual national consumption of about 4319m liters translates to about 7.6bn pints). Now consider cider, consumption of about 949m liters, or about 1.67bn pints translates to a decreased tax take of about £33m. So there is a further £100m lost that we, as consumers won't get. The 2% cut for Whiskey and other spirits would be harder to calculate, but the general point still stands.

Of course, there is the argument that these cuts benefit the corporations and thus benefits us, but given that many of the people wanting these cuts will not believe such things so we'll exclude that for now (and it's also very difficult to measure.
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TorpidPhil
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Yep. I agree. VAT disproportionately detriments the poor yet they seem unaware of this.
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MatureStudent36
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(Original post by TorpidPhil)
Yep. I agree. VAT disproportionately detriments the poor yet they seem unaware of this.
How so?

It's deemed a tax on luxuries.
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Quady
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(Original post by Jammy Duel)
People haven't forgotten about the VAT rise to 20%, it came up in PMQs today and Osborne was questioned yesterday about it, but people who want it togo back down to 17.5%, in my opinion, are generally delusional, the same goes for the people that want some of the products (including tampons which seems to be the most popular one for complaint) in the 5% VAT band to shift to the nil rate band. They only look at the tax rate and don't bother considering what would actually happen after the change, that is, nothing, well, not quite nothing.

What people seem to assume is that if the rate is cut then so will the price which is questionable, definitely in the short term (as it might be that in the longer term the prices go up slightly slower given the higher margins, but personally I am skeptical of this). In the case of the tampons it would represent a decrease in price just shy of 10p on your standard £2 pack. Similarly, a reduction of VAT from 20% back to 17.5% would be a cut of about 2% in prices if it were to be passed on. Except, the cut would probably, in the vast majority of cases, not be passed on to the consumer, but instead pocketed by the corporations (and many of the people who want these cuts would hate that). I'm also inclined to believe that it would still happen, at least partially, if VAT were reduced all the way back to 15%

Now, let's have a look at the cost of these cuts (i.e. the damage to services that would be provided, or alternatively how much lower a surplus would be if we had one), as calculated in another thread, a rough upper limit for the tampons would be in the region of £50m, while it doesn't sound a great deal that's what, getting on for a thousand doctors, say? Of course, the big one is VAT. For 2014-15 the net VAT receipts collected by the exchequer was estimated in the budget to be £111bn, a 2.5% cut to VAT would have reduced that figure by about £13.875bn.

So people want to cut government funding of £14bn+ and have to face further austerity (ironically the people who hate austerity in many cases) so they can put more money in the hands of corporations. Okay, let's be fair, some of that money being handed to the corporations will be taxed, let's just assume that the increased wages to managers and various ways to reduce the tax charged (whether it be 100% above board in the eyes of the public, avoidance, or evasion) balance out so it's a flat 20%, that brings us down to about £11bn loss.

What people should really want for their tax cuts is not in indirect taxation, but in direct taxation. Reduced council tax, reduced income tax rates, increased tax free allowance etc.




Actually, while here, let's take a look at reduced tax on alcohol from this budget. A 1p cut in beer duty translates to about £76m reduced tax take, again, this goes to the pubs and brewers, not the drinker. (Annual national consumption of about 4319m liters translates to about 7.6bn pints). Now consider cider, consumption of about 949m liters, or about 1.67bn pints translates to a decreased tax take of about £33m. So there is a further £100m lost that we, as consumers won't get. The 2% cut for Whiskey and other spirits would be harder to calculate, but the general point still stands.

Of course, there is the argument that these cuts benefit the corporations and thus benefits us, but given that many of the people wanting these cuts will not believe such things so we'll exclude that for now (and it's also very difficult to measure.
When VAT was cut to 15% the saving was largely passed on.

The duty changes probably won't but they are to support the industry, whisky sales are down 7% year-on-year as an example.
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Jammy Duel
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(Original post by TorpidPhil)
Yep. I agree. VAT disproportionately detriments the poor yet they seem unaware of this.
The people who should be paying next to no Vat?
And I'm not quite sure as to your point

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Quady
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(Original post by TorpidPhil)
Yep. I agree. VAT disproportionately detriments the poor yet they seem unaware of this.
I've never really understood how this was so.

Surely they pay disproportionately high amounts on housing, council tax, food and utililty bills? :/
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TorpidPhil
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(Original post by Quady)
I've never really understood how this was so.

Surely they pay disproportionately high amounts on housing, council tax, food and utililty bills? :/
They do, I meant in comparison to income tax. Most people would hate increased income tax but not mind increased VAT as much. Yet for most people the increased VAT would hurt them more due to the progressive tax system and the fact that the poorer you are the greater percentage of your income you spend and the lower the percentage of your income you save.

The super super poor who spend most of their $ on clothing/food wouldn't do so bad, but most people (say anyone on 18k a year or more) are going to lose out a lot from VAT rises compared to comparable rises in income tax.
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Jammy Duel
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(Original post by TorpidPhil)
They do, I meant in comparison to income tax. Most people would hate increased income tax but not mind increased VAT as much. Yet for most people the increased VAT would hurt them more due to the progressive tax system and the fact that the poorer you are the greater percentage of your income you spend and the lower the percentage of your income you save.

The super super poor who spend most of their $ on clothing/food wouldn't do so bad, but most people (say anyone on 18k a year or more) are going to lose out a lot from VAT rises compared to comparable rises in income tax.
Except that simply isn't true, what's the average shopping basket? Getting on for £100 per week? Now, suppose that is all taxable (boost the figures a bit), another 2.5% boost in VAT would cost about £100 more per annum, the same would happen if the personal allowance dropped by £500, or for that person on £18k getting an income tax boost of what, 1.4%, and obviously the more you earn the less it has to go up. Given we're talking about a comparable rise in income tax, so 2.5%, anybody earning over about £16k would be worse off with the income tax bump (although it would increase revenues more), unless you're talking about an increase in income tax to generate the same revenues, in which case you will have an upper threshold to when income tax rise is better, not a lower threshold (and actually that's true in both cases)
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Quady
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(Original post by TorpidPhil)
They do, I meant in comparison to income tax. Most people would hate increased income tax but not mind increased VAT as much. Yet for most people the increased VAT would hurt them more due to the progressive tax system and the fact that the poorer you are the greater percentage of your income you spend and the lower the percentage of your income you save.

The super super poor who spend most of their $ on clothing/food wouldn't do so bad, but most people (say anyone on 18k a year or more) are going to lose out a lot from VAT rises compared to comparable rises in income tax.
OK.... so middle earners then? Not the poor...
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TorpidPhil
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(Original post by Quady)
OK.... so middle earners then? Not the poor...
I'de say 18k is pretty poor...
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Quady
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(Original post by TorpidPhil)
I'de say 18k is pretty poor...
Well its a third more than the minimum wage if you work a 40hr week...

What would you say is average as opposed to poor then?

How about rich?
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Fanatical Geek
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It's just a human instinct thing.

"I work hard for my money, I don't want to lose it before I get it."

Economically speaking I think you're right though.


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Captain Haddock
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(Original post by Quady)
I've never really understood how this was so.

Surely they pay disproportionately high amounts on housing, council tax, food and utililty bills? :/
The poorest fifth of the population pay 9% of their income in VAT, for the richest fifth it's 4%. Looked at in this way, VAT is a regressive tax. And yes, utility bills are essentially privatised regressive taxes.
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(Original post by Captain Haddock)
The poorest fifth of the population pay 9% of their income in VAT, for the richest fifth it's 4%. Looked at in this way, VAT is a regressive tax. And yes, utility bills are essentially privatised regressive taxes.
Could you then argue that the increased income tax is a way of solving that.

I mean tax contributions from the rich has gone up over the last few years.


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Quady
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(Original post by Captain Haddock)
The poorest fifth of the population pay 9% of their income in VAT, for the richest fifth it's 4%. Looked at in this way, VAT is a regressive tax. And yes, utility bills are essentially privatised regressive taxes.
Sorry, I know thats reported. I was asking how. ie where does the money go to pay that much VAT.

That implies half your income goes on VAT at 20%.

Since rent, council tax, food are zero rated and gas, electricity, water at 5%, how do the poor sent their money so that they pay so much VAT?
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Captain Haddock
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(Original post by Quady)
Sorry, I know thats reported. I was asking how. ie where does the money go to pay that much VAT.

That implies half your income goes on VAT at 20%.

Since rent, council tax, food are zero rated and gas, electricity, water at 5%, how do the poor sent their money so that they pay so much VAT?
Ah now I see what you mean. I guess it would be stuff like clothing, hygiene products, non-exempt food, cleaning products, petrol, tobacco, alcohol and so on.
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Jammy Duel
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(Original post by Captain Haddock)
The poorest fifth of the population pay 9% of their income in VAT, for the richest fifth it's 4%. Looked at in this way, VAT is a regressive tax. And yes, utility bills are essentially privatised regressive taxes.
The poorest pay 0% income tax and NI, the rich pay up to 47% (with a 20k stretch at 60%), when hitting that 47% the average contribution is what? getting on for 40%, (and the average tax contribution across the entire population is almost flat at I think it's about 35% with a bit of wobbling and it going a bit less flat at the ends.
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Quady
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(Original post by Captain Haddock)
Ah now I see what you mean. I guess it would be stuff like clothing, hygiene products, non-exempt food, cleaning products, petrol, tobacco, alcohol and so on.
If that list adds up to more than rent and utilities then either you're a cleaning fanaticor on 70 a day.

Do the bottom fifth of earners run a car? Even if they do, insurance, VED and MOT are VAT free or 5% bringing the average down again.
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Captain Haddock
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(Original post by Quady)
If that list adds up to more than rent and utilities then either you're a cleaning fanaticor on 70 a day.

Do the bottom fifth of earners run a car? Even if they do, insurance, VED and MOT are VAT free or 5% bringing the average down again.
Don't forget that 5% on utilities etc would add up to quite a bit as well. I can't tell you exactly where their money goes, but hey, them's the figures.
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Quady
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(Original post by Captain Haddock)
Don't forget that 5% on utilities etc would add up to quite a bit as well. I can't tell you exactly where their money goes, but hey, them's the figures.
Well it does, but its a quarter of the standard rate.

I'd have thought with extra income you'd be a better consumer, attracting more standard rated VAT goods.

Buying that 60" TV and all that.
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