Seems fair enough to me 😀

Hi Fibby,

I think what matters here is how we view the bequest. Specifically, I see the spending of future generations as “implicit consumption” by the current generation.

As you say, this depends on the concept of infinite time – I am effectively assuming that the major motivation for providing a bequest is because the person values the lifetime happiness of their offspring/future generations. As this satisfaction is the result of consumption the current generation is implicitly consuming after their death, implying that it forms part of their tax burden.

The tax is flat because all income will be taxed at the same rate, even if the taxation does not occur during their lifetime.

A person who consumes all of their income pays exactly 12.5% of their income in GST – a person who avoids consuming any portion of their income pays less than 12.5% of their income in GST.

I completely agree. If there are distortions in the tax system then the tax would not act like a flat tax.

However, I would say that this is an issue with the set up of the tax system, not a GST rate per see.

@fibby

Hi Fibby,

The bequest only matters insofar as it has value for consumption. Sure rich people leave more for bequests, and the bequest wouldn’t be taxed during their lifetime when there is only a GST rate – but the fact is that it WILL be taxed when it turns into consumption.

A flat tax is just a tax where, no matter your income, you get taxed the same proportion of income as everyone else. If we had only a GST rate this would be the case.

(Sorry – I tried to put this in as an edit to my above comment, but my connection speed is such that the time expired before the edit form loaded.)

Not all savings are consumed, partly because there is uncertainty about the length of a life (you’d look pretty silly consuming all your lifetime income by the age of 85, only to live to 90), and partly because people like to leave some assets to their descendants. The result of these two factors is that a lot of people save or invest money which they never consume, but instead bequeath to others. If the bequeathed investments were originally GST-free (eg company shares, freehold houses, term deposits), then the investor never paid GST on this portion of their income. If people with a high lifetime income end up bequeathing a higher proportion of it in GST-free assets than those with a low lifetime income, GST is therefore lifetime regressive.