Friday, January 28, 2011
Spanish Social Security
Spain spent 95.7 billion euros on contributions-based pensions in 2010, almost 10 percent of GDP.Note the comment about 2050 debt required to fund the current system being about 190% of GDP. That's not going to happen.
I can't find this paper in English, but if you read Spanish you might want to see this paper by the economist cited in the article (and others). It's about the regressive impact of raising the Value-Added Tax in Spain.
Díaz-Giménez is a respected economist. You might find his 2007 paper on a flat-tax system in the US interesting. The model used has dated tax rates, but the conclusions will hold.
every step of the way. In an age of fiat currencies,
tariffs are still needed.
The VAT is a bad way to do the national sales tax. It's an accounting nightmare, and it forces everyone in the supply chain to find the capital to pay it. But it's the only one our Constitution will now allow.
And if it were in lieu of ALL income taxes on business, it would be a significant improvement. If it were in lieu of ALL income taxes, period, it would be even better.
And if it were working, it might be easier to make a case for the Fair Tax.
The income tax system we have now is horribly corrupt. A VAT will only create even more opportunities for corruption.
Europeans are more accepting of both corruption and government intrusion than Americans are, so they don't mind so much.
A sales tax, along the lines of existing state sales taxes, is far easier to implement, even if it doesn't capture every penny from every sale. It would do a reasonable job of taxing imports equally with domestic production, as well.
However the paper on the flat tax has an interesting dichotomy between efficiency and fairness that's relevant.
Basically, they found that making it too progressive shut off growth, whereas a flat tax with a less progressive structure produced much higher growth over time, because it raised capital investment.
If you read that paper in conjunction with the next post up you'll see why I might be thinking on those lines.
Paradoxically, the flat tax that produced growth helped the lower income levels a lot more than the progressive structure. It produced jobs.
Someone who know more than me can comment on this conjecture: that once a business goes to accrual accounting, the additional intrusion necessary for the VAT is small. Public companies are accustomed to the extra scrutiny, but yes, it would be rough on smaller businesses. And no, we don't need that. But the ideal choice is not within our immediate reach and we have the choice of trying for something which we may be able to do now or reaching for something that we can't get in the next four or five years.
This is a new one to me. If a sales tax needs an amendment (which makes sense to me), why wouldn't a VAT?
A sales tax is a tax on gross income of a particular kind.
The federal income tax would be unconstitutional were it not for an amendment passed that allows it specifically.
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