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