Most of the inefficiency comes from the implementation rather than the policy, and the use of an income tax rather than a consumption tax.
If you had a national VAT instead of a national income tax and the government wanted to subsidize e.g. solar panels, they would simply exempt solar panels from VAT and individuals wouldn't have to file anything, they would just pay less for solar panels because the seller wouldn't have to collect VAT.
The system we have now is unnecessarily complicated because the subsidy is essentially always for something you buy, but then you have to go and file paperwork to deduct it from your income tax. On top of that, then penalties have to work differently -- if you want to impose a penalty on cigarettes then you can't just change the amount of the existing VAT on that product, you need a whole new tax with a duplicative collections infrastructure.
The justification for this is nominally progressive taxation, but you could get a progressive effective rate curve just by giving everyone a fixed "standard refund" (i.e. a UBI) against an otherwise flat rate consumption tax.
Everything you're saying sounds great, but afaict VAT doesn't have the power to rework a society the way income tax does:
* Marriage is incentivized via the advantageous married-filing-jointly option.
* Donations are deductible.
* Employers are incentivized to replace part of wages with benefits packages including health insurance, which incentivizes people to not be unemployed.
(I'm not saying any of this is a good thing, especially that last one :)
> Marriage is incentivized via the advantageous married-filing-jointly option.
For 99% of people the 2023 brackets for married filing jointly are just double the ones for being single, and actually penalize two-income married couples in higher income brackets. Moreover, this wouldn't even do anything in a system with a flat marginal tax rate.
But if you actually wanted some marriage bonus you could increase the amount of the UBI for married couples.
> Donations are deductible.
So you don't charge VAT for donations or let the charity buy things without paying it.
> Employers are incentivized to replace part of wages with benefits packages including health insurance, which incentivizes people to not be unemployed.
This is definitely not a good thing and should be burned to the ground. But you could get the same effect if you wanted it by not charging VAT when e.g. employers pay for healthcare.
The better solution would, of course, be to not charge VAT when anyone pays for healthcare.
I agreed with everything the parent said, but to deal with the points you're implicitly raising: just send people checks instead of offering tax credits.
Do X? Get Y!
instead of:
Do X? Fill out 3 forms, cross-reference to 2 others, be eligible for a tax credit if you earned enough, file ....
If you had a national VAT instead of a national income tax and the government wanted to subsidize e.g. solar panels, they would simply exempt solar panels from VAT and individuals wouldn't have to file anything, they would just pay less for solar panels because the seller wouldn't have to collect VAT.
The system we have now is unnecessarily complicated because the subsidy is essentially always for something you buy, but then you have to go and file paperwork to deduct it from your income tax. On top of that, then penalties have to work differently -- if you want to impose a penalty on cigarettes then you can't just change the amount of the existing VAT on that product, you need a whole new tax with a duplicative collections infrastructure.
The justification for this is nominally progressive taxation, but you could get a progressive effective rate curve just by giving everyone a fixed "standard refund" (i.e. a UBI) against an otherwise flat rate consumption tax.