Ambient on/off

Join the new world


The Income Tax Myth: Why Low Income Tax Doesn't Hurt One Bit

Day 1,873, 13:54 Published in United Kingdom Norway by Major Lee Hung

I'm here today to finally back up an argument with numbers! A rare occurance in current eUK economics.

Myth #3847 - "Income Tax Fall is Hurting our Revenue!!111"


This is another issue where scaremongering has been used extensively. Now obviously on this point I'm going to be a little biased, I fully support the eventual abolishment of income tax until it becomes viable. I do however believe that VAT should remain the same, or even increase, unlike others who supported the low income tax motion. Why? Because of logical thinking and an open mind.

My Personal Tax Theory

Now I seem to be the only one who supports this view - but here it is:

Income tax should be dropped to 1%. It's worthless currently and unless wages increase by 200%+, it really isn't effective.

This drop should be offset with a 1% raise in VAT - a healthy 11% VAT would make up for the fall from 5% income tax in the most efficient way, and below I explain why.

Why Low Income Tax Isn't So Bad

*Income tax is likely to stick at 3%, so that's the rate I'll use in the below numbers. A fall to 1% has failed to pass.

Based on current levels of activity, we can assume that around 18,000 days worth of work will be completed in total in any rolling 30 day period. (18,000 is an absolute maximum, but this is merely looking as it in a realistic, albeit hypothetical situation) With a maximum average wage at about £20, this currently comes to £360,000 being spent on wages in the eUK every month.

At 5% income tax, this comes to £18,000 revenue from income tax every month.

We than factor in, after calculating based on activity, the number of people working in communes or in foreign countries. This comes to about 80 people at the very least, reducing the number of days worked in total every 30 days to 16,000. This means that after you take in to account the people working in Poland for the '100% bonus', giving a significant amount of income tax to Poland (or wherever people are working), we make about £16,000 a month in income tax. This pays for 1.6MPPs.

Now, when you drop income tax to 3%, we're likely to make just short of 10,000GBP every month in income tax, covering 1 MPP.

Comparison with Other Revenue

This seems like a significant loss - until you compare it to our total monthly income in that same rolling 30 day period, where we made just under 257,000GBP. If income tax is 3%, this become 251,000GBP. At 1%, it becomes 242,000GBP, which barely hurts our revenue. This means we can safely assume at least £200,000 comes in from VAT.

So far: Reasons to drop Income Tax

-eUK produces a lot of products in Poland, meaning we have a large surplus in terms of manufacturing.
-People who work normal jobs in the eUK are potentially disadvantaged by paying tax which is largely voluntary so to speak.
-Income tax makes up for less than 10% of our total monthly revenues, which further re-iterates my point that VAT is the one we need to care about.

So hopefully you're all on board so far - income tax is insignificant if we were able to compensate with a tiny rise in VAT.

Covering the Deficit - VAT: Raise?

So currently, we have a figure for monthly VAT intake - it's over £200,000, but I'm going to assume an absolute minimum for safety of numbers. Let's just assume we've cut income tax completely - our revenue is a flat £230,000 and we have £22,000 to make up. (I know that number isn't right, but best to be safe!) We have a couple of options to cover that deficit.

Food Raw Material

Several thousand food raw material is sold every hour, at a price of 0.03GBP. It's at a much lower demand than WRM, and food has a huge surplus in the eUK so it's much safer to raise this without huge effects on our eventual economic and military strength. Food prices could potentially raise up to 5% to make up for the rise here.

So lets say we take 2% of every transaction in VAT from FRM. This is a safe figure and barely impacts the person selling. My best guesstimate is that we're selling 2,900,000FRM every month on eUK markets, I won't go in to the specifics here to keep the article as short as possible, but message me if you want to know how I arrived at the figure. The monthly worth of this market to the eUK is therefore 87,000GBP. This raises £1,740 every month in tax with a 2% VAT rate, which covers about 11% of our deficit. We can cover up to 60% of the deficit with a 2% VAT on WRM too, but that could effect weapon prices in a couple of months.

11% VAT

So when we have a war ongoing, we're making upwards of £6,000GBP every day. I'm going to say £150,000 VAT revenue here in case we endure long periods of peace. If we increase VAT there by 1%, we again cover 10-11% of our deficit. Remember that this is assuming that there's no income tax whatsoever, and it's much more likely that we're going to be stuck on 3% income tax. This means that if we can tax both food raw material and increase VAT by 1% on food and weapons, we're easily recovering what was lost to income tax.

The Bottom Line

Income tax is a tiny part of our revenues. When gold prices are favourable, we make money from the monetary market. When we're in war, we make a huge gain from VAT, which increases by up to 75% on some days. Income tax however is totally dependent on the population. With so many eUKers working in communes or abroad, there's no reason why income tax should be kept.

And the whole point of this article was to disprove the scaremongerers - those of you who said how screwed we're going to be now that tax has dropped 2%. The fall in revenue really wasn't that noticeable.

Fun fact: Citizens now save 18GBP every month. This buys a little extra damage in the long run. Before being laundered through the tax system, 1.8GBP goes away in VAT. Therefore, the tax cut makes us as a nation about 1,080GBP back every month through VAT. This recovers a nice part of the cut.

Overall, lower income tax really isn't that bad!



Fritz179 Day 1,873, 14:05

Good article

Jamie2721 Day 1,873, 14:13

Lower both income tax and VAT!!!

BigAnt Day 1,873, 14:37

"Income tax is a tiny part of our revenues"

2x, people will Baww for any reason.

Alphabethis Day 1,873, 14:47

joshua, excellent analysis, now, try import tax, a low import tax would do wonders, and we eventually would become a nation of importer-exporters, like REAL UK.

Madacaion Day 1,873, 14:47

Income tax always was a tiny part of the government spending. VAT is the one we should be protecting or indeed increasing like you speculate in the article.

Its good to see some numbers as well which will back up holding VAT as it is obviously the critical component of our income. It becomes clear that reducing income tax will actually not do a lot for the population either (if its not bringing in a lot of cash - its because not a lot of people are getting money through traditional income) so in reality - meh.

nathaner Day 1,873, 14:51

voted totaly agree

surferdude Day 1,873, 15:39

well written article

Huey George
Huey George Day 1,873, 15:59

voted, an excellent and well written article.

LongShotzZ Day 1,874, 01:46

I see...voted!

Grampa Alfagrem
Grampa Alfagrem Day 1,874, 12:41

I know our commune is paying £5,800 a month in income tax @ 3%

Prince Harry.
Prince Harry. Day 1,875, 02:05

Voted a New Era policy is low tax , please see Alphabethis comments he knows what his talking about !

Danie Fox
Danie Fox Day 1,875, 09:12

I don't think you understand how VAT works, it can't be levied on raw materials. If the proposal had been to increase VAT whilst lowering income tax then you wouldn't have seen so much opposition - a lot of people just think it is a bad idea to cut our income whilst in deficit, especially when income tax levels were relatively very low any way.

Whilst I was in congress we were told the cuts would be paid for by dropping some of our MPPs (down to about 12 or 13), but now we have 15 of them again.

Post your comment

What is this?

You are reading an article written by a citizen of eRepublik, an immersive multiplayer strategy game based on real life countries. Create your own character and help your country achieve its glory while establishing yourself as a war hero, renowned publisher or finance guru.