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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

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: related: mises institute seminar, titled the "Taxes Are What We Pay for an Impoverished Society", videos available on youtube here:
    (more on the same channel)
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      Apr 18 2013: Much of this is true, but controversial. It's hard to imagine a society where taxes are paid voluntarily, in the amounts people feel like paying in proportion to the benefits they receive.

      A few interesting thoughts - income tax on benefits and salaries received from the government is a strange concept. It reminds me the hoax from commercials where they claim you will "save" $20 on a $100 spent. That's $80 expense, not $20 savings. In the same way, $20 taxes paid on $100 received from taxes is $80 tax consumption, not $20 tax payment.

      Interesting thoughts on how "taxes on the rich" are paid by everyone else except the rich. When a corporate income is taxed and the corporation has to jack up the price on its products or lay off people to avoid losing money, who pays the tax?
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        Apr 18 2013: it is hard to imagine a society without a king. it is hard to imagine a society without a slavery. it is hard to imagine a society with universal suffrage. these arguments could have been, and possibly were uttered. but history taught us that these things pretty much possible, and even desirable. today these arguments sound incredibly shallow. so why the same argument is worthy with imposed taxes or a coercive state in general?
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          Apr 18 2013: This is a very good point.

          However, don't you think that "king" and "slavery" have simply changed names and forms? The oppression still seems to be there. Whether you have to submit to the will of the king or to the will of the democratic majority - one way or the other, you have to give up your interests and money. Doesn't a 25% income tax amount to involuntary servitude from January till the end of March? Even without tax, there seems to be no way out of slavery through mortgage payments and credit card interest.

          Universal suffrage seems to be a misnomer too. Teenagers don't vote, inmates don't vote, immigrants don't vote (even legal immigrants who do pay taxes and contribute to society) anyone who is considered "incapable of making decisions" is pushed aside. But who decides who is "incapable", how and why?

          Can these "injustices" be completely eliminated rather than replaced by other injustices?
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        Apr 18 2013: that's a good point. slavery can be seen as a concept. we can say, slavery is owning someone else's time (=life). i can own all of his time, in which case he is my slave. or i can own a part of his time, which does not have dedicated name, but it is in essence the same thing. tax is partial ownership of a person's life. of course it is better to be partially owned. just like it is better to be mildly hurt than badly injured. similarly, it is not a different concept if one rules all the others, or 51% rules the 49%. but clearly, more people are satisfied with the latter arrangement.

        what we do for many hundreds of years, if not thousands, is that we identify and eliminate, one after the other, instances of slavery, theft and murder. the powers that be always tell us that their rule, theft and murder is different, it is just and it is in the interest of the people. but it only takes time to see through these lies, and make the next logical step toward the eradication of aggression.

        side note: in my world, there would be no universal suffrage, there would be no voting at all. but i agree that if we take democracy seriously, everyone should have exactly one vote, criminals, mentally disabled, infants, does not matter.
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          Apr 18 2013: I think, we are on the same page. In our "ideal world" people don't pay taxes, the poor and the sick are taken care of by the voluntary charity of the rich and the healthy, all services are provided by the market for a fair market price, mutually agreed upon and paid voluntarily; there is no need for courts and police because there is no crime and injustice; and voting is not necessary because there is no need to push or enforce any legislature on anyone.

          But while we are working at achieving these ideals and try to eliminate slavery, theft, extortion, and murder, we seem to need police, courts, and jails, at the very least. We also need to define what constitutes crime and how to deal with it. Hence, we need voting, the institutions of power, and we need to collect taxes to maintain them. And these institutions of power and taxes which are a form of robbery corrupt the society creating oppression, injustice, theft, extortion, and murder which they are supposed to eliminate.

          It's a vicious cycle. It's not unique to society. Immune system is supposed to protect our bodies, but when it is under-active or over-active, we start suffering from HIV, MS, celiac disease, hypo- and hyperthyroidism, allergies, autism, psoriasis, etc. These are just few examples of autoimmune diseases. Most of today's incurable diseases are autoimmune disorders. They are the toughest to address.
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        Apr 18 2013: we did not get rid of kings because nobody wants to be a king anymore. we did not get rid of slavery because people don't want to own slaves. we find ways to ... so to speak "convince" those that want to initiate aggression not to do so. stable society is the one that can defend itself against aggressors, not the one that has no aggressors. we can find ways to operate a free society despite all the wrongdoers and selfish people out there. we do want law enforcement, guards and all that stuff. we just don't necessarily want a coercive organization provide those.
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          Apr 18 2013: I hope, "we" will find a way. In my opinion, to achieve society without coercion and greed, "we" need to quit thinking that "they" (the 'rich', 'the 1%' or whoever) should be forced pay more to provide benefits for "us" ('the 99%').

          Not that "they" shouldn't pay. I just think that forced charity isn't charity at all. It can only be sustained by force and coercion and, ultimately, doesn't make anyone more kind or rich.
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        Apr 19 2013: but we don't need a society without greed or attempts of coercion. of course it would be good, but unrealistic in our foreseeable future. we need systems that protect us, or help us protect ourselves, from aggression. the question is who operates, owns such systems, and what their jurisdiction is. the state is such a system, but it is a monopoly on an arbitrarily chosen territory, it's jurisdiction is everyone in the territory, and participation is not voluntary. this system is obsolete.

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