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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 19 2013: Tax separates human society from anarchy or the natural tribal state of our existence. The Philosopher Thomas Hobbes summarizes this state of nature were the lives of people would be "solitary, poor, nasty, brutish and short." For any meaningful government to thrive, taxes are necessary to support the fundamental or even optional activities of that government.
    We all hate taxes, but tax is, even more than law, the foundation of civilization. Laws are good but without a will and a force to enforce them they are useless. The will comes from our wish to be safe and the force comes from our willingness to "pay" for the enforcement of the laws.
    The types of tax often determine the amount of power a "state" will have. A flat tax, for example minimizes the power of any state. A complex income tax maximizes that power. Sales tax and VAT fall some where in between. Of course there are many other taxes; marriage, death, ownership, locality, etc.
    The choice of sales tax versus income tax, therefore, is a choice by the citizens of how much power they want to invest in their legislative bodies. The economics are nearly irrelevant as taxes can be manipulated to reach any desired figure of income.
    I don't support any particular form of tax but I do hope all citizens think carefully and deeply when enacting or seeking any tax law.
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      Apr 19 2013: Re: "The choice of sales tax versus income tax, therefore, is a choice by the citizens of how much power they want to invest in their legislative bodies. The economics are nearly irrelevant as taxes can be manipulated to reach any desired figure of income."

      Someone said that "giving the power and the money to the government is like giving the booze and the car keys to a bunch of teenagers".

      One of my objections to the income tax in its present form is its extreme complexity and manipulative nature. The whole process of preparing a tax return is a hypocritical tax-evasion game. What everyone is doing when preparing the tax return is stretching and twisting definitions of "business expense", "depreciation of assets", "business use", values of donated items, whether a car driven to work or between two places of work can be considered a "business expense", whether tuition in a private kindergarten was paid for education or for the childcare so that the parents could work; and even then, the ability to take the deduction depends on whether the spouse works or not. Forgive me my French, but this seems like a crock of shit to me. The process of signing under penalty of perjury a certificate full of arbitrary definitions (i.e. lies) that I owe money to a coercive agency, possibly, incriminating myself, is detrimental to morality and sense of human dignity. I think, the tax system should have just one or two numbers for the government to play with (the rate, for example) - that's it. No tax breaks, subsidies, returns, deductions, exemptions, etc. The less the government and everyone else can manipulate the system - the better for everyone.
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        Apr 19 2013: A single global consumption tax (sales tax) = common sense.

        Add death tax + gift tax + bad stuff tax - no other taxes

        It would fix the biggest problem - wealth inequality - from there it would be possible to solve many other seemingly intractable problems that are consuming maximum resources for minimum results.

        The Digital Revolution makes global, national, local governance possible through a website like msn.(States are obsolete)

        Next step is 'The Political Revolution' - global e-democracy for equal opportunity - democratic government by the people for the people.

        A single global political party - a public company - like Microsoft or Apple. It could launch simultaneously in USA + UK + AU + NZ + Japan

        Boards of Directors are global thought leaders who are elected by each other in (like the Papal Conclave).

        Executives are experts with track records of success in their portfolios who are pre-selected by the Board and elected by the citizens on 10 year contracts. (Politicians become extinct)

        State of the art common sense political, legal and financial systems devoid of ideology. (Current systems become extinct)

        Transfer of wealth to rich + demand for austerity + debt burden + political shambles will lead to widespread anarchy in enough countries for people of USA to vote for major change in due course.

        Then it will be easy to create a global, national, local political party within the current framework that wins elections and executes massive rapid structural change post election.

        Governance principles, policies, procedures, practices that are commonsense.

        People in dictatorships go to website and click.

        'Dictatorship' 'Prequalify' 'Countries' 'Qualifications' 'Egypt' 'Customize' 'Defense Request' and get on with the peaceful task of winning online support in order to get armed support from other countries.

        It could start from a global political activists club - a social commercial network that empowers political activists - anybody interested?

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