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Chote on VAT June 24, 2010

Posted by larry in economics, Institute for Fiscal Studies, social policy.

Anyone with half a heart views VAT as a regressive tax. But Choate has gone that extra mile to argue that, really, it isn’t as bad as we might think. His comments, made on a BBC1 program on the budget, made my jaw drop. Put concisely, his argument is this: if we take into account the spender’s lifestyle, then we can see that VAT the effect of the VAT increase is not as pernicious to those on lower incomes as it might at first appear. Eh?

This is because those with larger incomes purchase more expensive items and those on smaller incomes will spend anyway and will purchase less expensive items, so VAT affects them less.

This leaves me speechless.  And it doesn’t fit well with the recent report by the Institute for Fiscal Studies on the budget, which views this budget as largely regressive in character.  (For a discussion by the IFS about the emergency budget, see http://www.ifs.org.uk/projects/330.)



1. Larry Brownstein - June 24, 2010

No regressive tax can be said to be “great”. It differentially affects the less well off in a seriously negative way, particularly if it is somewhat high. And I consider 17.5% to be too high, let alone 20%. Once VAT was for so-called luxury items, but now covers many essentials. It is a matter for social debate what is considered to be essential, but a number of the items presently covered by VAT can not reasonably be viewed as luxuries.

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