Sales vs Income Tax

In part 1; I looked at the progressive vs. flat income tax scenario where I by far approved of the flat tax.  Here, in part 2, I will discuss the notion of replacing the income tax with just a sales tax (which we already have).  Either of which will be used to finance the federal government.

The benefit of the flat income tax I already spoke of previously.  It taxes all citizens on their salary, in a fair manner.  There is no segment of the population that gets soaked because they happen to make more.

The problem I have with an income tax is what I view as a loss of privacy.  You must divulge information regarding where you work and how much you make.  I view this as an invasion of privacy.  It shouldn’t be their business where you work.  Then there is the audit. 

If you agree that the government knowing where you work and how much you make is an invasion of privacy, then lets start talking about the audit.  If Revenue Canada finds it necessary to audit you, then prepare to divulge information…year’s worth of financial information.  Every drawer of your personal and financial life becomes open and available for their scrutiny.  I find that pretty gross especially considering how confusing our tax laws are…can you really ever be sure that you did not ever in the last 5 years deduct something that maybe shouldn’t have been deducted?

For a while now I have wondered if a sales tax would be a better, less intrusive way to finance a properly sized government.  I imagine it would essentially be what we have now with the GST but I would apply it to all items that are purchased for consumption and also include services or a product sold to the end user that is not quickly consumed (like a couch). 

What I like about this approach is that in a small way, it remains a little bit voluntary.  As in, you can buy the 60 inch TV and pay tax on it, or buy a 42 inch TV and pay less tax.  You can limit your spending and therefore limit the amount of tax you must pay.  It also removes the intrusive manner that Revenue Canada imposes its tax laws. 

However, there are negatives.  The sales tax approach dictates that the more you spend on goods and services, the more you are required to finance the services the government provides.  Just because you buy more products, doesn’t necessarily imply that you use government services more than others.  But the same can be said for the flat tax.  Even though the rate would be same across the board, citizens earning more money would therefore spend more on taxes.  I don’t see a big difference.

The next argument is one that I never considered, and I don’t really have a rebuttal for.  After visiting the Libertarian Party of Canada’s website, it looks as if many of them are opposed the to the GST tax for one important reason: it transforms ordinary citizens and business owners into tax collectors.  I have never thought of that, and indeed it sounds wrong to put that responsibility on ordinary citizens.

Whatever the answer, I won’t claim to know it.  I just know that we as Canadians are taxed more than we should, to finance a federal government that is larger than it should be.  A sales tax or a flat tax of a respectable rate should be enough to keep the government afloat so that we can rid ourselves of the other cash grabs Ottawa has in place to make money.