Thursday, July 27, 2006

Hong Kong to Impose Sales Tax ?

I see now in columns from Alan Reynolds at and Christopher Lingle at TCS Daily that the world's freest economy, Hong Kong is moving closer to imposing a sales tax. Both argue quite well against the idea.

Provided the revenues from this is used to lower other taxes, this may not be such a bad thing. But in practice, it is unlikely that this will happen. Instead this will likely in part be used to increase social spending.

Increasing the number of taxes is likely to increase total taxation as each tax will seemingly seem less punitive. When America introduced the income tax in 1913, it was promised that the revenues would be used to lower tariffs. In the end, total taxation went up.

This is why the idea of a sales tax in Hong Kong should be rejected. And this is why for example voters in Stockholm should reject the introduction of "congestion taxes".

If every krona raised from such a tax would be used to cut income taxes for the people of Stockholm, it would perhaps be a good idea. But in practice, it is likely to increase total taxation (and indeed, the left-wing parties in favor of the tax have promised to use revenues to increase spending).


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