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Arkady Grudzinsky

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Would you prefer sales tax to income tax?

The power to lay and collect taxes is, perhaps, the greatest power of the government. With this power alone, the government can encourage or prohibit certain behaviors without passing additional laws - it can effectively ban alcohol, tobacco, firearms, etc., can coerce people to marry, to have or have no children, buy gas or "green energy", buy real estate, lock up their money for decades in retirement accounts (both policies make people return a large percentage of their income straight back to the banks withdrawing huge amounts of cash from circulation). Taxes inhibit the taxed activity.

I see several advantages of sales tax compared to income tax:

1. Sales tax inhibits spending, income tax inhibits earning. When money are taxed when spent, not when earned, it may encourage saving and investing rather than spending and incurring debts.

2. One can avoid paying a sales tax on discretionary items by not buying these items - sales tax is less coercive.

3. Sales tax on discretionary items appears to be self-regulating. When it is too large, people stop buying the taxed items, and the tax revenues drop. It's easier to determine the economic effect of sales tax and optimize the sales tax percentage. Whereas, the economic effect of changing income taxes is a lot harder to determine.

4. The tax code would be extremely simple - just a look-up table of tax rates (this may be a naive statement).

5. "Taxing the rich" would mean taxing the excessive luxurious lifestyle. Why would a frugal billionaire who leads a lifestyle of an average citizen be taxed more than an average citizen?

I understand, there is no "correct answer". This is why I post this as a debate. I'd like to know how many people think this way and to hear cases for or against both types of taxation.

Edited 4/13/2013: This seems to be a similar idea: http://www.fairtax.org

Topics: economy taxation
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Closing Statement from Arkady Grudzinsky

I'd like to thank everyone for the discussion.

There were good points made:

- that sales tax would make "the rich" pay smaller percentage of their income than "the poor";

- that no matter what type of tax we have, "the rich" will still have an opportunity to avoid it - either by spending money overseas or by making money overseas bringing into consideration the necessity of a uniform wold-wide taxation.

- A good discussion whether charity should be voluntary or compulsory and whether people should contribute to society voluntarily or forced to do so.

- Good references to other resources such as Mises institute.

- Interesting point in a video referenced by Krisztian Pinter that taxes have a way of distributing across all layers of society - often what seems to be "a tax on rich" becomes a burden on "the poor" bringing up the idea of a uniform tax (sales or income) with equal percentage for the rich and the poor.

- A good discussion with Pat Gilbert of how government intervention in free market creates artificial incentives and "bubbles" which are unlikely to exist otherwise.

These are just some points worth noticing. I appreciate having a civilized discussion on such highly politicized topic involving social justice, economy, and morality. This is where TED community stands out.

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    Apr 17 2013: Arkady

    I am a supporter of consumption taxes as a more mature and responsive source of money to fund our collective services and interests (government), than income taxes. Consumption tax is a larger frame than simply sales tax. It includes, for example, fuel used in transport trucks, ocean freighters and agricultural equipment. The net effect of consumption taxes is that they send a price signal to the market (that is, to all of us). The meaning of that price signal is that there is a serious cost to the earth and the rest of us in consuming material and energy. We cannot avoid consumption, but we can choose to reward and reinforce inventions and behaviours that create qualitative value for society with the minimum consumption.

    The price signals sent by income taxes, without proportional taxes taken from consumptive industries, sends a perverse set of price signals. Full employment is devalued, while the price of shipping goods from distant places or from energy inefficient production is subsidized. Faced with these price signals any corporation must focus its creative talent on exploitation of off shore jobs rather than jobs at home. On shore industries that are highly consumptiive (ie. irrigation agriculture of bulk grains) are subsidized while industries that are less consumptive and job creative (ie. permaculture farms) are discouraged.

    I look for the day when there are no income taxes and we charge every industry or carrier that sells to our market is charged for the all of the energy and material consumption involved in the production AND transport of their goods to us. I am not arguing for an increase or decrease in taxation - save that for a different debate.

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