Have you got two weeks? I've written a lengthy underground (i.e., unpublished) masterpiece on this issue.
The idea is that if you receive a dollar of wage income that is subject to tax, then save a portion of the remainder, the tax on returns to saving the remainder is a 'second' tax on the initial dollar of income. "Double tax" is an ideological expression. A more neutral way of describing this is to note that if you earn a dollar and save it, as opoosed to spending it immediately, you pay more tax in the first case then in the second. So an ordinary income tax that pertains to labor and capital income alike implies a higher tax burden depending on one's saving behavior. The implied remedy is a consumption tax from which all returns to savings would be exempt. It is possible to do this in a progressive fashion, by the way. The reductio ad absurdum of the 'double-savings' argument is reflected in the premise that if you saved some amount and let it grow to astronomical proportions over the centuries, the increments to the initial stake are not really 'income.' They are instead the time-translation of some primordial stock. It also follows that under the 'double-tax' argument, a tax on the initial stock yielding X is equivalent (sic) to a tax later on the accumulated X*(1+t)^T, regardless of the literal magnitudes involved. The observation that an ordinary income tax is not equivalent given different savings behavior is valid, as far as it goes. It raises fairness issues, for instance. Imagine two twin brothers with equal capacities, income, and luck in all respects. If one defers consumption more than the other, he pays more income tax in present value terms. The 'double-tax' discourse is a bit different in ideological debates. It ignores, for instance, the multiple ways in which unsaved wage income is taxed For a sober analysis of this I would recommend David Bradford's Untangling the Income Tax. DD's note refers to a different controversy -- the taxation of corporate income first in the corporate income tax as dividends paid and second in the individual income tax as dividends received. Under the double-tax argument, the tax on dividends alone is the second occasion for tax. Of course, there is plenty of corporate income never subject to tax, but that's not a bug, it's a feature. mbs Does anyone know the origin of the phrase "double tax on savings." I'm teaching public finance and must address the issue of double taxation on savings as the textbook makes a big deal out of it. For the life of me I don't see how taxing income and then taxing capital gains/interest constitutes "double taxation." Was the phrase "double taxation on savings" invented to justify tax cuts for investors? If so, does anyone know when this idea first appeared? Thanks for any leads on this. Eric Nilsson Economics CSUSB
