If You Weren't Cynical Before, Fall Into a VAT

[Texas Proud]

So, I'm semi retired but still in a high marginal tax bracket here in Canada, lets say 45% or so. Our VAT ( actually called HST - Harmonized Sales Tax ) , was increased from 13% to 15% last week. So when you think it thru, thats really a 3% tax increase before taxes.

So, I kinda discuss it with the wife. Its really really reached the point where its not worth earning the money anymore. I think I will really ER and enjoy the free healthcare while it lasts!

Fuzzy math maybe....

But what I get is.. 15%/13% = 1.153846... or a 15% increase in your HST....

 

[superdave]

I was thinking more like a 3% increase in total taxes.

ie. (15 -13 ) * 1.45

No matter what way you look at it, it hurts.

 

[Texas Proud]

I was thinking more like a 3% increase in total taxes.

ie. (15 -13 ) * 1.45

No matter what way you look at it, it hurts.

I still think fuzzy math...

You are not paying the new tax on your marginal dollar... but all dollars... so I do not know why you did *1.45...

Say you had $100,000 income and your taxes were $20K.. but your margin was 45%.. you have $80K to spend... I don't think your tax is on everything.. (but I could be wrong on that).... so, let's say it is only on half your spending... or $40K... your old HST was $40K .13 or $5.2K.. now it is $40K * .15 or $6K... an increase of $800..

So, you taxes went from $25,200 to $26,000 or... 3%... HMMM

OK.... what am I missing here... is this just a coincidence

 

[superdave]

You have most of it. The tax is on all goods and services. Very few exceptions, such as groceries. Average income tax rate is probably 28%, so its really more like 2% * 1.28 . Regardless, its a tax on post tax dollars. We can't hide from it.

 

[samclem]

Regardless, its a tax on post tax dollars. We can't hide from it.

I think this is one reason it is being discussed in the US. It is not just another tax. It is a new way for the federal government to tax money that has (usually) already been taxed once. As US income growth levels off in the coming decades (in response to globalization) the FIT (if rates and deductions/exclusions are kept constant) will not grow at the rate needed to pay for the much larger government spending envisioned. By instituting a VAT, the government gains the ability to tax the large quantity of stored wealth that Americans may have put aside during the prosperous past.

 

[queeneev]

Regarding the discussion of the VAT: I sat in on a CPE session this week, hosted by several tax attorneys based in DC and who are heavily involved in lobbying on tax issues, and in particular, utility industry impacts, such as the cap and trade. The debate was heated and opinionated (along party lines), but the consensus was: a VAT will happen, but not in 2010 or 2011.

 

[IndependentlyPoor]

Regarding the discussion of the VAT: I sat in on a CPE session this week, hosted by several tax attorneys based in DC and who are heavily involved in lobbying on tax issues, and in particular, utility industry impacts, such as the cap and trade. The debate was heated and opinionated (along party lines), but the consensus was: a VAT will happen, but not in 2010 or 2011.

Um, er, Can I ask a really dumb question? Which side is for VAT and which is against?

 

[queeneev]

I didn't write that vey clearly did I?. I noted a split of opinions on the VAT versus higher income taxes, (not to imply that they are mutually exclusive but the conversation turned into a "which one is a better tax and which one will fly easier"). The left side was adamant that we will never get out of our spending mess without a VAT, and that trying to get out of debt via income taxes would never succeed. The right side was just pissed about "yet another tax", . Honestly, I tuned out most of that because it was the usual hotheads that usually preach their opinions upon those who disagree, and I get tired of it and tune it out. I was there to learn about income tax laws, and this sidebar discussion cropped up. I thought it was worth mentioning here because the lead speaker had a good pulse on current DC vibes and he seemed pretty confident the VAT will ultimately come to pass.

There seems to be no decent way to do any tax planning anymore, especially when you can't predict what the future holds. Very frustrating.

 

[Hamlet]

Until the underground economy starts growing by leaps and bounds. There's an awful lot of non-compliance with the relatively small state sales' taxes we have now.

I'm pretty sure that if a VAT pushed the overall rates to 20% we'd see a massive increase in buying and selling under the table.

Regardless, its a tax on post tax dollars. We can't hide from it.

 

[Bikerdude]

By instituting a VAT, the government gains the ability to tax the large quantity of stored wealth that Americans may have put aside during the prosperous past.

Ding, ding ,ding! Exactly, including your Roth IRA.

 

[HsiaoChu]

If we just had a uniform income tax of 6% for EVERYBODY, people and corporations and nothing else, we wouldn't need any of this.

Anybody know what the gross annual salary of every working person, business and corporation in the USA is? This data ought to be somewhere in the IRS data.

Z