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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 22 2013: > Pat and Arkaady:

    "There has been a bruising battle over how much America's largest corporations should pay in taxes, especially as the size of the federal budget deficit grows. While on paper the federal corporate tax rate is 35%, companies usually pay far less than that because of loopholes and subsidies. " ~http://www.usatoday.com/story/money/personalfinance/2013/03/17/companies-paying-highest-income-taxes/1991313/

    "The top 1 percent of taxpayers paid 33.7 percent of all individual income taxes in 2002. This group of taxpayers has paid more than 30 percent of individual income taxes since 1995." ~http://usgovinfo.about.com/od/incometaxandtheirs/a/whopaysmost.htm

    100% - 33.7% = 66.3%. The 71% number came from a govt. site. I'll try and find it again. The 66.3% is a calculation from the above website data.

    The upper 5% pays the biggest part subsidised with the lower middle class. Those making under $24,000.00, of course, pay little to nothing.

    Looking at income, the rich make the majority of the money when compared to every other individual.

    "Taxpayers who rank in the top 50 percent of taxpayers by income pay virtually all individual income taxes. In all years since 1990, taxpayers in this group have paid over 94 percent of all individual income taxes. In 2000, 2001, and 2002, this group paid over 96 percent of the total." ~http://usgovinfo.about.com/od/incometaxandtheirs/a/whopaysmost.htm : This supports Pats assertion but Pat does little to define who the 50% are leaving some to imply they are the top 1% or the very rich.

    "According to a recent report from the Congressional Budget Office, the Americans paying the highest effective marginal tax rates are, for the most part, low- to middle-income individuals" ~http://www.bloomberg.com/news/2012-11-25/the-working-poor-pay-high-taxes-too.html
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      Apr 22 2013: Corporate welfare is a bad thing. But as noted before corporations do not pay taxes the consumer does.

      There has always been income disparity and there always will be. It is irrelevant, it is income mobility that is important.

      It is important to note that much of the income disparity meme comes from a report by Piketty and Saez that fails to report that much of the disparity comes from tax law changes that encourage people to report income as individuals rather than corporations. Another meme is one espoused by Elizabeth Warren that shows household income has dropped precipitously in the last 30yr but she fails to report that the rate of divorce is the cause since when ever there is a divorce the household income is cut in half.

      Of course the top 50% includes the top 1% I'm missing your point.

      this site refutes your CBO quote: just look at the graph

      http://www.cbpp.org/cms/?fa=view&id=3151
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        Apr 23 2013: Income mobility is important but protecting the income is even more so. Sometimes you can't keep it unless you share with others, else they will take it from you and delve it amoung themselves. The world is not a more peaceful place, just more complex.

        I've been trying to buy a home for the last two years. The problem is -people with lots of money who want to make more betting on a future they think will support them into the next decade. I can't compete in bidding wars with wall street who has billions to toss in the game while I onlyh have a bank who is willing to lend me the difference to purchase a home.

        To wall street it is just about making more money. To me it is the last home I will buy. Wall Street sent a group with 11.5 billion dollars to buy up all the nice homes, leaving the junk. They hope is to make 8% for 5 years while renting the homes to those who can afford it. I am left with one option: Build a home, a bit smaller than I wanted. On the down side, my bank and others who own these forclosed homes don't want to lend to build they want to lend to get rid of debt -so I am stuck, along with many others who may have to rent the rest of our lives.

        The middle class is going down as a result of the the same thing that happened before WWII, presipitated by the same forces the caused the Great Depression. The money lenders and bankers wnat it all and to control it all. But, forces in Europe decided differently and chose war as a means to level the playing field and take it all away from them. Of course the price we paid was too great but once all had been destroyed, it had to be rebuilt again, providing jobs for the many who were left.

        Thus is the history of capitalism and how it will always be played out. Communisim tried a different approuch but could not weed out the collected need to centralize the wealth and hang on to power. Socialisim was the only course left to those who had their country destroyed by that war who didn't want Communisim.
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          Apr 23 2013: Clearly I'm not going to show you anything. On the off chance there is someone who will read this, who knows he doesn't know (on TED, right) I will respond.

          1st paragraph I have no idea what you are talking about

          2nd Paragraph You would be better off to wait until the bubble pops again and you will be able to buy a house for much less

          3rd see paragraph #2

          4th the class warfare is created by politicians it is not as much substance as they want you to believe. Real personal income has risen 50% over the last 30yr. per capita consumption has gone up by the same amount. Admittedly since O has taken the reigns this has not been true but that is because he has scared the hell out of the investors who have said deal me out. As far as the middle class and the great depression goes, the middle class was created after WW2

          5th I have no idea what you are talking about.

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