all right, let's dive into the economic policy known as a value added tax or a back or a
bat tax.
Although bat tax doesn't really make sense because it makes it a value added tax tax,
but sometimes people say that tax,
this has been coming up a lot more lately, particularly because democratic presidential
candidate Andrew Yang has been talking about that taxes, more people have gotten interested
in the policy and essentially a that is a tax on consumption.
It's on stuff that you buy and it's implemented at different phases in the production of the
good where value is added.
There's a lot of different countries that have that.
Taxes have different kinds.
If you look at the countries that have that taxes, there's not really a trend about where
we say, well countries with VAT taxes tend to be higher income countries or lower income
countries or countries with that.
Taxes tend to have higher deficits or lowered efforts.
It's just really all over the map, figuratively and literally and people who like that taxes
often say one of the pros is you generate income for the government to then use for
stuff without just going after the wealthy with like a higher top marginal tax rate,
for example.
But that also relates to the primary critique of a VAT tax, which is that it's regressive,
meaning it is more attacks on the income of poor people than rich people as a percentage
of their total income.
So imagine that you put a 5% VAT on computers.
Rich people might consume more computers than poor people, but as a percentage of their
income poor will pay more to a VAT tax than rich people.
If you put a 5% VAT tax on computers.
Now another pro of the VAT tax is that it is claimed to be harder to avoid a VAT tax
with some of the tax loopholes that let you avoid other types of taxes.
And the reason for that is that the, that tax is added at each stage where value is
added to a product instead of quote at the register like a sales tax.
And so it doesn't disincentivize income like a high top marginal income tax rate might.
And we're going to deal with that later as well.
Now Andrew Yang's proposal includes the idea of exempting some staples and putting sort
of like a luxury VAT tax on luxury items that only rich people are likely to consume or
purchase.
And that that in principle would deal with the regressive nature of the VAT tax.
So yang says staples would have low or no VAT tax and basic goods would have low or
no VAT tax, but then luxury goods would have a higher VAT tax.
That's a perfectly reasonable idea.
But there's very good research from the tax policy center about this, which says you can
reduce the degree to which of that tax is regressive by exempting some staples and doing
higher VAT taxes on luxury goods, but that the high income households consume, um, uh,
more of those, uh, luxury goods, but it's still less as a share of income and it still
ends up being a regressive tax in total, just less so.
Now there are some inaccuracies in some of the things that Andrew Yang has said about
the VAT tax.
He will often flatly say the VAT tax already works in a hundred countries.
You know, it, that taxes exist in many countries, different parameters in different countries.
There's different ways of measuring what success would be.
The blanket statement that VAT taxes succeed or are working well in a hundred countries.
It's not a very meaningful statement to make.
Now there's an alternative to a VAT tax, which is a refundable tax credit for a fixed number
of dollars that could be proposed.
And with that, everybody gets the same amount.
If you earn less.
It's progressive in the sense that you get a higher portion of your income refunded if
you earn less, and it's the exact opposite of a VAT in terms of this is a progressive
tool, whereas the VAT tax is a regressive tool.
So in total, what do we know about that taxes overall?
Number one, they are regressive.
Okay.
That taxes hit lower income people more than higher income people even with a higher tax
of that tax on luxury goods even exempting some staples.
That's what the tax policy centers research tells us.
Number two, that taxes do tend to decrease consumer spending overall.
And number three, that taxes do tend to increase the cost of goods at their final retail or
consumer price.
Even though VAT taxes are levied at different stages in the production process where value
is added a lot or all of that is ultimately tacked on at the end to the retail price of
a product.
So does that mean of that tax is bad?
No, I mean it just like any policy that taxes do raise money for governments and then that
is money that government can use to pay for things.
There are many policies that have similar consequences where they either increase prices
or they are regressive.
That doesn't mean it's a policy that should never be considered or that it's a policy
that should definitely be considered with any policy.
We have to weigh the pros and cons.
We have to consider whether there are better tools available that might more directly get
us to our goal.
We have to consider what is considered fair.
When we think about who should be taxed.
Then at what levels, and then we have to also think about what behaviors are we trying to
incentivize or disincentivize what economic activity would have that tax and courage or
disencourage unencouraged this incentivize and then we figure out whether a VAT tax makes
sense.
There's no universal right or wrong with these things.
There are different tools for different scenarios.
That tax is one of those.
There is a story that's hugely important but not necessarily for the reasons a lot of people
think.
The Chinese doctor who was the whistle blower about Corona virus has died now immediately
a ton of articles and a ton of people started saying or implying the Chinese government
killed the doctor and that that's the scandal.
The doctor appears to have genuinely died of Corona virus himself, which he contracted
while working at [inaudible] central hospital in China.
The scandal and the controversy is that the Chinese government appears to have sent police
to tell him to shut up about Corona virus after he sent out a warning via chat group
to other doctors on December 30th about Corona virus.
We're talking about 34 year old.
Dr. Lee wen Liang, who was an ophthalmologist, noticed seven cases of a virus that looked
to him like SARS.
He sent a message to doctors in a chat group saying, you should wear protective clothing
when you're with patients.