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 23 2013: Arkady,
    You live in Beaverton.
    I was raised in Beaverton, where they income tax, but no sales tax ( and you are not allowed to pump your own gasoline).
    Now I live in Seattle, where we have no income tax, and nearly 10% sales tax.
    364 days of the year, I would rather live in Oregon.
    Only 1 day of the year, I would rather live in Washington.
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      Apr 23 2013: Yes, but they deduct 5% from each paycheck. Of course, people from Washington love Oregon - they come here to shop all the time. And Washington residents from across the river who work in Oregon don't have to pay Oregon income tax either. I can understand why people in Washington love Oregon income tax.

      The cheapest gas in Oregon right now is $3.29 per galon. The cheapest gas in Washington is $3.19. Do you know why? Because we pay 10 cents per galon to the guy who inserts the hose and swipes the card through the slit.

      I'd rather save the 5% of my paycheck or pay off a credit card and insert the hose and use the slit myself than never see my money and then pay some dude to insert the hose for me :-)
      • Apr 24 2013: I really don't care about pumping my own gas or not.
        But I do care about having to pay an extra 10% for anything that's not food.
        It would be different if the tax was included in the price (like a VAT), but it's not.

        FWIW, my wife disagrees with me too (along with a majority of voters in WA).
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          Apr 24 2013: Food is the second largest expense in my family after mortgage. At 10% sales tax, with those 2 excluded, I would pay less than 5% of my gross income. Besides, the tax would be in my face with every purchase and would make me think whether I want to pay it or not. The way things are in Oregon, I simply never see the money and have no choice. I also have to file 2 tax returns. I find tax returns a humiliating time waste.

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