Saturday, May 28, 2011

New revenue without income tax

This post applies to all of Europe, and to Belgium in particular. With the recent turmoil regarding state expenses and how to gather the required money for the future (retirement funds, investments in the future etc) there is a big debate on whether it is best to cut government expenses or rather introduce new taxes.

I would like to seize the opportunity to defend an idea of mine (actually it is not mine, but I like it):

  • we take the very brave step of abandoning income tax altogether (read on!)

  • we collect all tax money via VAT

Now I know what you will think: raising the VAT would require a VAT rate that is unrealistically high. I think this is not true because this is in essence a redistribution of the tax burden to where the money is:

  • People who are in the black economy (drugs, illegal construction work, anybody else cheating) will contribute in this system.

  • Also, foreign visitors that consume in Belgium will contribute in this system.

  • Also, very rich people who consume more will contribute more in this system (now they don't - there is no tax on capital (good!)).

  • Everybody else that I might have forgotten will also contribute.

In summary: because more people contribute, there will be more income from VAT than there is now from income tax without a significant increase in VAT. To optimize, luxury goods could receive a higher tax rate than now. At the very least, this should be considered as a serious alternative by our Belgian politicians. Given the current polictical situation they surely have time to investigate this :-)

Edited: another reason why this is fair: heavy consumers pay more tax - this is also better for the environment. And one more: if you don't consume, you don't pay taxes. You can keep the money you make.

Hopefully, this kind of regime will also attract the foreign workforce talent we so much need here in Europe!