I mean, I know we all oppose doing it, but what's the principle that justifies savings not being taxed that is consistent with our current system of taxation?
The Federal government taxes money you earn, then the state (usually) taxes it again. Any of it you spend get taxed a third time; if you save it, any interest it earns gets taxed. If you invest it, and make a profit, the profit gets taxed. If you buy real estate, the real estate -- which is just something you exchanged for the money -- gets taxed every year (and if you can't or don't pay the taxes, they'll sell it out from under you at auction, making sure they get 100% of what they tax before you get whatever, if anything, was left from the fire-sale price they accepted).
So we can't stand on the principle that the government shouldn't seize the fruit of our labor. We can't stand on the principle that they should only do it once, because we already permit double taxation even on income, and because we permit taxes on subsequent activity even after that. We can't stand on the principle that, at least once you own something and have paid all the taxes up to that point it should be yours free and clear: we continue to tax land you buy (and automobiles, at least if you want to take them off the land you bought). So accumulated wealth is already subject to taxation, in certain forms.
Progressives have been talking for years about a wealth tax, of which this is just a partial version. It strikes me that this form isn't that different from the property taxes we pay every year. Why shouldn't you have to pay for the privilege of holding a certain amount of wealth? There are lots of arguments, but are any of them consistent with what we already do?
If not, does that mean that the tax system we have is unprincipled? If so, does that make it unjust? Or is it fine to have a completely contingent system? If that, then, why oppose a wealth tax? It's just one more contingency.
what's the principle that justifies savings not being taxed that is consistent with our current system of taxation?
ReplyDeleteThese are two separate questions, not one. I'll answer the first question with one of my own: what's the principle that justifies savings being taxed? What principle, not what practice?
The second part assumes that what we do should be consistent with our current code. Aside from the fact that it's wholly inconsistent internally and with our natural rights, its current uneven--arbitrary, even--application of taxes alone renders it unworthy of trying to tax (further) consistently within it. After all we can't stand on the principle that the government shouldn't...--of course we can. Our taxing system is erroneous; we need no special reason to not perpetuate or expand error.
The system we have is the result of abusing our tax code for social engineering and not using it for its purpose: to fund the Federal government so it can see to our national defense, pay our national debt, and take care of our general Welfare--which from the Federal government's perspective (notwithstanding what politicians have distorted it into) is enumerated by and limited to the next 16 clauses of Art I, Sect 8.
Our tax system is unprincipled, but not solely for the reasons in OP, which are just a small subset of the problem. Our tax system is unprincipled exactly because it's used for social engineering: it redistributes wealth, it favors some groups of Americans at the direct expense of other groups (whose favor and disfavor are determined solely by the men of government), and through these it fosters crony capitalism instead of true, free market capitalism.
Eric Hines
Obviously I'm not an advocate for a wealth tax, but several principles justifying them have been proposed (and these sorts of taxes haven't been unusual -- indeed, as I mentioned, property tax is a form of wealth tax that we ourselves employ). The Wikipedia article has a collection of rationales, some of which rise to the level of principles of justification. You don't have to agree with them, of course, but it's not as if they don't exist.
ReplyDeleteThe question is on my mind because of the throwing-out of a portion of Alabama's state constitution yesterday by a Federal court. The court argues that its ban on 'gay marriage' is unconstitutional because it hurts the children of 'gay parents.' Well, Alabama might respond, we didn't want that either: we were also opposed to gay adoption, and of course two men can't have children anyway. So your rationale for setting aside our duly and democratically-enacted constitution is just that it's necessary to fix a problem that you caused the last time you chose to meddle in our laws.
So the existence of principles that aren't in practice (to use your helpful distinction) doesn't actually do us much good. If they've succeeded in ramming other things through, those things serve as precedents for the next round of ramrodding. Is there anything left of a standing, in-effect principle that could be used to stop this?
That the system we have is unprincipled is, I think, the necessary conclusion of examining it. That it is unjust I agree. That better principles than we have in practice are available I also agree.
If you or I were to redesign the tax structure of the country from scratch, I imagine we'd put in place a principled system. (Possibly different principles, but at least there would be some.) At least there's some chance of justice if there are principles to which you can appeal: otherwise, how could you challenge a tax as unjust?
The only thing I've come up with, thinking about this today, is Norquist's principle: "No new taxes." But that was supposed to 'starve the beast,' and the beast just learned it could create massive debt instead. The rationale for that principle has proven to be false. Furthermore, it would also prevent the revision of the system we have towards a principled system (as those new, principled taxes would be 'new taxes').
Still, it's in effect.
Of course it means that our current system is unprincipled. I thought that was obvious. This is just a way to grab more. For people who believe in soaking the rich, why not? What limiting principle would there ever be? Why not just take it all?
ReplyDeleteIs there anything left of a standing, in-effect principle that could be used to stop this?
ReplyDeleteThe drum I keep beating: when a long train of abuses and usurpations...it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security.
First with elections. We're on that path, with 2.5 successful elections in the last three. But, unlike Progressives, I'm not holding out for instant results of which I approve. It's going to be a long, hard slog. If, in the end, we fail with the elections, there's the other way to execute our duty. And there are enough of us to carry it off.
Eric Hines
If I understand McArdle's article correctly, the Feds are not talking about taxing savings; they're talking about taxing the interest on a particular kind of savings, the 529 college savings plan. Currently:
ReplyDeleteAlthough your contributions are not deductible on your federal tax return, your investment grows tax-deferred, and distributions to pay for the beneficiary's college costs come out federally tax-free.
Under Obama's proposal the interest earned on 529s will still be tax-deferred. However, when money is withdrawn the accrued interest (capital gains) will be taxed as ordinary income.
It seems to me the question is not, "What's the principle that justifies savings not being taxed that is consistent with our current system of taxation?" but rather "What was the principle that said interest on this particular kind of saving will not be taxed?" I suppose a justifying principle could be that paying for college is more important than anything else people might save for. I doubt, however, that exempting interest on 529 accounts was based on principle.
There seems to be some dispute over whether this is soaking the rich. Obama claims it is - 70% of the savings in 529s belong to people making over $200,000. Others claim it's really taking from the (upper) middle class - the average amount in 529s is something like $20,000.
ReplyDeleteAs McCardle points out, we are going to have to go after money from the middle class - the "rich" don't have enough money to pay for what we want to spend.
Right. It's like the bank robber who was asked why he robbed banks, and explained "That's where the money is."
ReplyDeleteThe bank robber was Willy Sutton. He also advised, "Go where the money is. Go there often."
ReplyDeleteEric Hines
I was thinking about the IRA plan as much as the plan McArdle is talking about; and also about several articles I read a few years ago (when Obama was new and Progressives were riding high) about just instituting an outright wealth tax.
ReplyDeleteIt seems to me the question is not, "What's the principle that justifies savings not being taxed that is consistent with our current system of taxation?" but rather "What was the principle that said interest on this particular kind of saving will not be taxed?"
Probably it was 'we wish Americans would save money for college, so let's give them an incentive.' We're altering the deal; pray we don't alter it any further.