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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 25 2013: Arkady: you may keep your idea I have no obligation to fallow. This is not a personal attack.

    If government pays you so you could eat, means that Gov. must steal money from somebody (taxes) or print money (inflation – different form of robbery).

    Charity (not Gov.) is something special. The problem is that Gov. (and politicians) wants to replace charity. We should support charitable org. This one and only exemption does NOT require lawyer. It requires a proof. Contribution for them (max. 10%) does NOT destroy the idea of ‘same tax for everybody’.
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      Apr 25 2013: If you have a uniform income tax withdrawn at the source, with no returns and lawyers involved, and you want charitable donations to be deductible, then the charitable donations must be deducted from the paycheck which limits the the freedom to give to whomever and wherever we want. Otherwise, it seems necessary to fill out a tax return to get the money back which resurrects the necessity for lawyers and opens up the discussion of what donations are qualified.

      Re: "If government pays you so you could eat, means that Gov. must steal money from somebody (taxes) or print money (inflation – different form of robbery)."

      I agree. This is why I'm not a fan of government doing charity with other people's money. With "prebates", the trick is that the rich will get the prebate also. Prebate does not depend on how much you make.

      Taxes are extortion of money under threat of violence. There is no way around it. How it is used and who receives does not change the way government gets the money. By definition, benefits from taxes don't go to the same people in proportion of what they pay. If this were the case, there would be no reason to take the money from people to begin with.
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        Apr 26 2013: Arkady: I want to be short (time is almost out). Charitable org. must be legal. Donor does NOT need a lawyer.

        Taxes must be for Country, State and City expenses: not for any kind of charity.

        Implementation of sale tax only (no other taxes) leads to the era of ‘Al Capone’. Simply, you need Brinks like company to relocate any goods.

        My proposal is: no property, no sale, no sin taxes, …. One and only: income tax – simple, equal, unchangeable forever.

        https://www.youtube.com/watch?v=BOmwFmMAkrk
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          Apr 26 2013: You got a whole system on your web site. I'll check it out some day. This needs a bit more consideration. In general, I agree with what you say. I'd go with uniform income tax as well. I like simple, consistent, and honest systems that leave no room for hypocrisy. The existing income tax system does not fit these requirements for me.

          Well, nothing is unchangeable forever. "The only sure thing is change" (or "death and taxes" in another version of this adage).
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          Apr 26 2013: Re: "Taxes must be for Country, State and City expenses: not for any kind of charity."

          If government does not do charity to help the poor, there seems to be no reason to make charitable contributions tax deductible. Isn't the logic for charity deductions that it relieves the government of the burden to help the people who benefit from these charities? If taxes don't go to disaster relief, food stamps, etc., there should be no connection between taxes and charity.

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