In addition to the reduced rate, many sectors, such as healthcare and education, are exempt from VAT. The reason for this is that these sectors would make positive contributions that are not included in their market price. However, even if this is the case, it would be more efficient to subsidize such sectors directly but otherwise fully tax them, as the distortions caused by the exemptions would then be avoided.
This is because the exempt sectors do not have to charge VAT on their sales, but are not allowed to deduct the VAT paid on their purchases. This leads to disturbed purchasing and outsourcing policy. For example, if a company cannot pass on the VAT on purchased services, there will be a greater incentive to provide those services itself or to outsource them to another sector with a low VAT rate. For the above reasons, a uniform rate with as few exemptions as possible appears to be the most efficient design of VAT. For the proper tax bracket the right calculator is there.
Wealth Tax: Taxes actual capital income
Countries within the OECD differ greatly in the extent to which they tax wealth, although it generally accounts for only a small portion of tax revenue. Wealth tax consists of taxes on income from assets (such as interest, dividends, or currency gains), taxes on assets (such as real estate), and tax on capital transfers (such as inheritances).
Capital income tax
For a long time in economics science the taxation of capital income was seen as economically very disruptive, which led to a plea against a capital income tax. The assumptions required for this do not appear to be valid in reality. That is why more and more economists argue in favor of taxing capital income. Nobel laureate Peter Diamond and Emmanuel Saez also cite several practical reasons for taxing capital income. The main practical reason for taxing capital income is that the dividing line between labor income and capital income is often very blurred. If capital income were not taxed at all, the incentive to pass labor income as capital income is very strong, leading to additional distortions and tax avoidances.
In order to prevent economic disruptions as much as possible, all capital income should then be taxed the same. This means that home ownership and pension assets should not be excluded either. This prevents disruptions between different forms of capital. For example, if housing capital is not taxed but savings are, there is an incentive to put all the capital in one’s own home, which will lead to economically disruptive behavior.