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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 20 2013: As a 100% disabled Combat Veteran, I'm considere one of the (Entitled) personages some people talk of. They dismiss the fact I lost body parts and function that would have made me more competative with healthy people.

    One thing most people over look is the money given to the (entitled) is spent in it's entirity in the local community for food and desperately need meds and utilities. The (Unentitled) get their money through govenment contracts at rediculiouslly low interests rates and use it to make more profit for themselves. It's true they have to spend money to support their lifestyle but the more money you have, the cheaper you can buy in bulk and sell of the rest as inventory in your business interprise or to other suppliers, making even more profit for yourself.

    I think those who recieve less are doing better at putting the money back into circulation, almost immediately.
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      Apr 20 2013: That is not entitlement. But I suspect you know that.

      I genuinely thank you for your service.

      A touch stone of any economy that is not known by the average person is that jobs and prosperity are created by investment. Agreement or disagreement is irrelevant the climate is either made conducive to investment or it isn't. This is why the economy has been so anemic for the past 5 yr. When FDR would utters words like paraphrasing "the business man just thinks he is going to produce goods as he sees fit without any government intervention" Not to different from what we see today with the current POTUS. And then they wonder why there are no jobs, funny stuff except it is not that funny.
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      Apr 20 2013: John, I very much support giving to the needy. My son has a learning disability, and I feel the pain of parents with disabled children. I believe, however, that the motives of why people donate to charities and the attitudes of those who receive it, are important. When people donate to the needy to get tax benefits or to get "political capital", it's not charity. When people donate because they are forced to, it's not charity.

      On the other hand, I think, charity and other help needs to be accepted with humility and gratitude and not taken as something "due". My friend volunteered at a donation center and witnessed "poor" people quarreling about the items or expressing indignation regarding why they did not get something. This attitude seems disgraceful to me.

      I believe, taking care of disabled veterans is the part of the deal when the government sends people to war. It must be the part of the defense budget, not a social program. I believe, veterans fully deserve the honor and the privileges. But I also believe that honoring myself and demanding privileges for myself isn't right. It's a delicate issue, I know. I hope, I don't offend anyone here.
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        Apr 20 2013: Not really talking about needy people Arkady. I'm sorry I'm not making myself clear.

        My point is that not all rich people put money back into our economy or support the country by paying taxes. The majority of tax receipts come from the 71% of the working population, not the rich.

        A sales tax system might be a good idea but I haven't seen any real figures to support the idea. Can you point some out or did I miss something?

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