Does the government take it all?

[Markymark]

@Beebo is spot on. All the mars bars, Ferraris etc are the GDP. All the taxes (VAT, PAYE, NI, CT etc etc) add up to 39% or so of this. So we get to keep, on average 61% of our "earnings" and we give 39% to the government which then spends it on NHS, Education, Police etc etc

Ok, so with the 61%, what happens to that money? What if I spend it?

 

[Archie_tect]

That tallies neatly with what I paid in taxes in total last year running the practice.... but doesn't account for VAT we paid on
food + home purchases.

[PK, need to adjust your first line, the retail sale price of the Mars Bar includes 20% VAT on each transaction, so it's 83p + 17p and so on down the line + there will be some input tax that isn't reclaimable as value may be added on each transaction...]

 

[Beebo]

Ok, so with the 61%, what happens to that money? What if I spend it?

You have spent it, you've bought stuff with it. The stuff you bought is the other 61%!

 

[Markymark]

Ah, ok.

 

[Markymark]

would someone like to pay my VAT?

Vodka And Tonic?

 

[nickyboy]

Ok, so with the 61%, what happens to that money? What if I spend it?

It's held as assets amongst the entire British population be they mars bars, Ferraris, houses, cash, shares etc.

As soon as you spend the cash, this circulation of cash in the economy attracts taxation (such as VATon your mars bar or paying someone to walk your dog on which they have to pay IT and PAYE). The taxation rates assume a certain speed of circulation of money in the economy. If it circulates faster, more tax is paid, slower and less tax is paid. So if we all stop spending money, tax receipts would dry up overnight. Equally, if we all suddenly spend our savings, tax receipts would accelerate.

So in your example, if we all suddenly spent the 61% (ie liquidate all our assets into cash and then buy stuff) the government would be awash with tax receipts (they would get 39% of the 61% in addition to the original 39%)

 

[PK99]

[PK, need to adjust your first line, the retail sale price of the Mars Bar includes 20% VAT on each transaction, so it's 83p + 17p and so on down the line + there will be some input tax that isn't reclaimable as value may be added on each transaction...]

Yep. that is one of the zillion simplifying assumptions....

 

[Archie_tect]

....and that as well, thank you

Buy it from a really small LBS that isn't VAT registered then it really messes up everyone's sums Mr R.