TED Conversations

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 19 2013: Would you prefer sales tax to income tax?

    "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."

    There is a third case... that being the old adage... "He who has the gold makes the rules", and you can pretty much surmise the answer from that, well at least in a "democracy" :)
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      Apr 19 2013: Yes. I love those variants of "The golden rule of morality" - "Do unto others before they do one to you" and "He who has the gold makes the rules". These talks are, pretty much, inconsequential. I realize that.

      But understanding the economic and social mechanisms is not useless.
      • Apr 20 2013: I never said it was, but in someways one has to realize the reality that we're in, if only to know what the consequences of change are. That's where the true value lays in discussions like this. And as you can no doubt see, getting consensus is probably the biggest challenge. Maybe because, and due to the fact morality, like which tax do you think is better, is inherently subjective.
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          Apr 20 2013: Yes again. Unfortunately, there is no litmus test to determine what is "just". The definitions of "just" are often opposite, depending on which side of any proposed transaction people find themselves.

          The definition of "rich" is also vague. Most people define "rich" as people making or having more money than themselves. There are as many definitions of "rich" as there are people.

          Yes, consensus is the key and understanding each others opinions promotes consensus.

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