Vat Is A Regressive Tax

[Snugglybear]

There is an argument that poorer households spend a smaller proportion of their income on VAT rated goods and services than better-off households, as essentials are non-VAT-rated.

This is not, in fact, the case, as a report out today from the Office of National Statistics shows.

http://www.ons.gov.uk/ons/dcp171776_239565.pdf

"Poorest households spending more on VATable items than in 1986 The poorest fifth of households in the UK spent a higher proportion of their expenditure on goods and services that attracted Value Added Tax (VAT) in 2009/10 than in 1986. Poorer households in 1986 spent a smaller proportion of their expenditure, than poorer households in 2009/10, on discretionary items which attracted VAT. Finally, the data shows the poorest fifth of households in the UK pay more in VAT as a percentage of their disposable income than the richest fifth."

More at the link.

[thecrashingisles]

"Poorest households spending more on VATable items than in 1986 The poorest fifth of households in the UK spent a higher proportion of their expenditure on goods and services that attracted Value Added Tax (VAT) in 2009/10 than in 1986. Poorer households in 1986 spent a smaller proportion of their expenditure, than poorer households in 2009/10, on discretionary items which attracted VAT. Finally, the data shows the poorest fifth of households in the UK pay more in VAT as a percentage of their disposable income than the richest fifth."

Isn't that another way of saying that the poorest fifth are better off than they were?

[Rachman]

And, hidden in there, is this gem

For example, after taking into account changes in prices, the poorest fifth of households spent, on average, around

250 per cent more on new cars, holidays abroad, meals out, audio/visual goods (including TVs) and

photographic equipment combined, in 2009/10 than in 1986.

the ONS isn't a socialist organisation, honest.... it's independent, free thinking and not afraid to tell the truth.

[Sir Harold m]

And, hidden in there, is this gem

For example, after taking into account changes in prices, the poorest fifth of households spent, on average, around

250 per cent more on new cars, holidays abroad, meals out, audio/visual goods (including TVs) and

photographic equipment combined, in 2009/10 than in 1986.

the ONS isn't a socialist organisation, honest.... it's independent, free thinking and not afraid to tell the truth.

The other point that is required for qualification is that by and large, VAT is a choice. There are very few items which charge VAT that could be described as essential.

My dad was pretty poor (in income terms) and I bet he hardly paid any VAT.

[gimble]

There is an argument that poorer households spend a smaller proportion of their income on VAT rated goods and services than better-off households, as essentials are non-VAT-rated.

This is not, in fact, the case, as a report out today from the Office of National Statistics shows.

http://www.ons.gov.uk/ons/dcp171776_239565.pdf

"Poorest households spending more on VATable items than in 1986 The poorest fifth of households in the UK spent a higher proportion of their expenditure on goods and services that attracted Value Added Tax (VAT) in 2009/10 than in 1986. Poorer households in 1986 spent a smaller proportion of their expenditure, than poorer households in 2009/10, on discretionary items which attracted VAT. Finally, the data shows the poorest fifth of households in the UK pay more in VAT as a percentage of their disposable income than the richest fifth."

More at the link.

Haven't read it yet, but if they are measuring rich & poor by household income alone then your conclusion about VAT being regressive may be wrong. The reason is that someone retired with a million pounds in the bank earning 5K in interest will be deemed 'poor' as they have low income. If you divvy households up by their spending, and not their income, VAT proves to be a progressive tax i.e. households that spend the least pay the least VAT as a proportion of what they spend. This was covered a while ago on a feature that I saw on newsnight.

Edited October 31, 2011 by gimble

[Snugglybear]

If you're looking at spending on essential versus discretionary items, the table you want is Table 1.

In 2009/10, the figures for the poorest one fifth are 1,029 on all items and 102 on discrectionary items (i.e. roughly one tenth on discretionary items) whereas the figures for the richest one fifth are 3,173 on all items and 570 on discretionary items (i.e. roughly one fifth).

[LJAR]

Hmm

the growth rate in spending has been much higher for low income households than it has for high income households.

It also seems that poor households were all spending more than their income, which implies a pensioner heavy sample.

[mfs1959]

The analysis is strictly correct.

However the use of disposable income skews the analysis.

Poorer households don't save a lot as they don't have much to save.

Richer ones can save, savings don't attract VAT, therefopre the %age of disposable income spent on itrems that attract VAT may be higher. Rich households still spend more in VAT. In actual fact, the way that VAT is levied in the UK makes it mildly progressive, as it has been since it was introduced under Heath.

[macca]

I just don't understand why politicians think its a good idea to punish people through taxation for helping people sell their goods or services. Surely far more wealth and employment would be generated if vat was abolished.

[easy2012]

There is an argument that poorer households spend a smaller proportion of their income on VAT rated goods and services than better-off households, as essentials are non-VAT-rated.

This is not, in fact, the case, as a report out today from the Office of National Statistics shows.

http://www.ons.gov.uk/ons/dcp171776_239565.pdf

"Poorest households spending more on VATable items than in 1986 The poorest fifth of households in the UK spent a higher proportion of their expenditure on goods and services that attracted Value Added Tax (VAT) in 2009/10 than in 1986. Poorer households in 1986 spent a smaller proportion of their expenditure, than poorer households in 2009/10, on discretionary items which attracted VAT. Finally, the data shows the poorest fifth of households in the UK pay more in VAT as a percentage of their disposable income than the richest fifth."

More at the link.

VAT isn't particularly a good tax (vs property tax) but ONS seems to forget about hedonic adjustment this time as they always do with RPI/CPI. With the improvement in the quality of stuffs that they get, surely more mean less...

This bit is striking though.. the poorest fifth seem to be able to spend more than their disposable income on VATable goods (most non discretionary spending are non vatable...so I am pretty curious..)

Poorest fifth of households

1986 2001/02 2009/10

Disposable income 7,101 8,729 10,535

Expenditure 9,567 13,234 14,252

[Mr Jib Fingers]

I would be surprised if there was a tax in existence that can't be described as regressive. At least with VAT you can choose to avoid it, unlike council tax for example.

[VacantPossession]

The other point that is required for qualification is that by and large, VAT is a choice. There are very few items which charge VAT that could be described as essential.

What do you mean by essential? Your phone bill has VAT. As does your mobile bill. Are you proposing that is not essential? Any computer has VAT added. Are you suggesting a modest computer is a luxury? Are you proposing that buying a shirt (assuming you are an adult), or a pair of socks, is not "essential". Have you never had to eat a meal not at home? Is it a luxury to buy a sandwich at a take away?

Poorer people pay a higher portion of their disposable income on VAT goods because they are poor, not because they buy more bling (except perhaps if you feature in that ghastly programme about Essex).

Poorer people pay an enormously higher rate of tax in comparison to their disposable income than anyone else. Almost everything they buy is taxed in some way or other. Add to that their Council tax, which in some cases is equivalent to more than 20% of their disposable income after food, clothing and "essentials".

VAT is not a choice. It is the equivalent of the mafia arriving at your business, if you have one, whereupon virtual thugs tell you they need protection money in return for leaving you alone. Like council tax, VAT, as levied on businesses, is a legalised form of theft with menaces. For the consumer, it is just another layer of tax put on top of alrady taxed income. And that's leaving "duty" out of the equation.

Edited November 2, 2011 by VacantPossession

[SNACR]

I would be surprised if there was a tax in existence that can't be described as regressive. At least with VAT you can choose to avoid it, unlike council tax for example.

Hmmm

Is shoe-horning yourself into a school uniform, designed for an obese child, and eating meals with your fingers, whilst sat in a house built from books, really a viable choice?

[LJAR]

I just don't understand why politicians think its a good idea to punish people through taxation for helping people sell their goods or services. Surely far more wealth and employment would be generated if vat was abolished.

Absolutely but all the political bribes politicians have promised the electorate have to be paid for somehow.

Income taxes are arguably even more bad for enterprise and commerce. Why disincentivise earning money? We want people to earn more money, save it and invest it into things that make yet more money.

Edit - I think taxes are a bit of a red herring regarding wealth and employment generation. The biggest issue is regulation and government control.

Edited November 2, 2011 by LJAR

[mrtickle]

A mobile 'phone is definitely a luxury. Ubiquitous, extremely useful - but NOT essential.

[VacantPossession]

A mobile 'phone is definitely a luxury. Ubiquitous, extremely useful - but NOT essential.

I see. How many public BT telephone boxes have you witnessed working in the last five years? My point is that you cannot really compare what was considered a luxury 20 years ago with what you might perceive is a luxury now.

Of course the biggest luxury of all nowadays is to have a reasonable roof over your head. Strange contrast.

[BalancedBear]

I would not consider myself poor, but I have bought used computer equipment and other used things on ebay, which many poorer people seem to buy new. It seems odd why many poorer people would not wish to spend their little money more economically.