Monday, June 25, 2007

More on the Social VAT

The consumers' group UFC-Que Choisir argues, contrary to the defense of the social VAT that I posted yesterday, that the effect would be inflationary, because capital-intensive producers could not reduce prices sufficiently to offset the VAT increase; because the cost of foreign goods would necessarily increase (but this neglects the possibility of substitution of domestic for foreign products); and because firms, especially in less competitive sectors, would be tempted to increase their margins rather than reduce prices to offset the tax increase. The group also rejects the government's argument that the shift from payroll charges to VAT would bring French tax policy more into line with other European government policies. The French VAT is already higher than the German, even after the recent German increase. UFC-Que Choisir prefers an increase in the French income tax, which is much lower than the European average.

Of course if the Socialists had proposed an income tax hike as more equitable than a VAT increase, they wouldn't have reaped whatever electoral benefit they may have derived from the polemic against the social VAT.

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