Path: utzoo!attcan!utgpu!watmath!julian!uwovax!gerard From: gerard@uwovax.uwo.ca (Gerard Stafleu) Newsgroups: can.general Subject: Re: That F'n Fed. Sales Tax is Gonna *HURT*!! Message-ID: <3567@uwovax.uwo.ca> Date: 16 Aug 89 17:23:13 GMT References: <1989Aug13.161201.7535@tmsoft.uucp> <1989Aug14.185256.1260@jarvis.csri.toronto.edu> Distribution: can Organization: University of Western Ontario, London, Ont., Canada Lines: 61 In article <1989Aug14.185256.1260@jarvis.csri.toronto.edu>, mart@csri.toronto.edu (Mart Molle) writes: > > The basic idea is that it makes it much less attractive for your dentist > to go to the widget distributor offering to clean his teeth for free in > exchange for a free widget, so the dentist can avoid paying sales tax on > the widget and income tax on the cleaning money used to pay for the widget. > This is because each widget now comes equipped with an audit trail, from > which Feds can see that the distributor bought a widget but didn't resell > it to a retailer. We must be approaching the final frontier of big government here. According to this view, the Feds would do the year-end inventory and accounting for the _whole country_! Wow. But it is true that tax evasion will have to become a bit more subtle, if not less effective. The trick is the following. The widget manufacturer will sell the widget to the dentist, in the normal way (he may give a discount). I rather doubt that it will be recorded to whom he sold the thing, or if it is possible for the Feds to trace that. Even if it is, it doesn't really matter. What the dentist will do is charge the manufacturer for the cleaning job. But he will charge him less than the normal price. Finally, he will not report the job to the Feds, thus avoiding both income tax and FST. In other words, the dentist and the manufacturer split the gain of not paying taxes. The principle here is that while goods may be traceable (but don't hold your breath), services are as good as un-traceable. As a result, a "black" economy of services will develop. For example, if you want a plumbing job done in your house, you can call a well known, go-by-the-rules plumbing firm, and pay a lot of money. You can also call a handyman, who, in a careful balancing act, declares only part of his income. I'm not making this up out of thin air. In countries that have a FST-like tax, this system works quite well. For example, in the Netherlands it is estimated that 20 to 30% of the economy is black. In Italy, numbers as high as 50% are mentioned (together with the remark that the reason there still _is_ an Italian economy, is their black economy). I had a "handyman" do some things in my house in the Netherlands, and payed only about 60% of what an "official" job would have cost. So you can see how I'm expectantly waiting to see how Wilson is going to make his predictions about less tax evasion come true. You can probably also see why I'm not holding my breath. A final philosphical remark may be in order. The amount of tax evasion does not depend on the type of tax. It depends on the (un)willingness of the people to pay tax, which is directly related to the height of the taxes. As European countries have discovered, there is a limit (somewhere between 50 and 60% total tax pressure) beyond which taxes can literally not be raised. You can raise the rates, revenue, though, stops increasing (both because of evasion and because of stifling the economy). -------------------------------------------- Gerard Stafleu (519) 661-2151 Ext. 6043 Internet: gerard@uwovax.uwo.ca BITNET: gerard@uwovax