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QOTD: Saving As Philanthropy June 5, 2008

Posted by federalist in Taxation.

Steven Landsburg, in a review of Ronald Wilcox’s book:

Like philanthropy, saving is an act of self-denial that enriches your neighbors (by leaving more goods available for them to consume). But unlike philanthropy, saving is punished by the tax system (via the taxes on interest, dividends, capital gains and inheritance). That’s nuts. When you tax saving, you encourage people – wealthy people in particular – to spend more and grab a larger share of the consumption pie. “More consumption by the rich” should not be among the primary objectives of the tax code.

The alternative is to tax consumption. Mr. Wilcox thus believes (as do I and probably most economists) that a consumption tax is better than an income tax, at least in principle. But he withholds his full endorsement for a variety of spurious reasons, mostly born of his false assumption that any consumption tax must be levied at the point of sale. He worries, for example, that a consumption tax is necessarily nonprogressive. But you can easily implement a consumption tax with a Form 1040 that says: “How much did you earn this year? How much did you save? Now pay tax on the difference.” And you can make that tax as progressive as you like.



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