RE: Double tax on savings
[EMAIL PROTECTED] writes: 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. Max - Isn't this ceding too much to the double-taxation position. I mean yes it' true that the thrifty brother will pay more income tax than his twin, but he will also earn more income (the interest on saving in addition to the original income) than his twin. Ellen
RE: RE: Double tax on savings
Ellen writes, Isn't this ceding too much to the double-taxation position. I mean yes it' true that the thrifty brother will pay more income tax than his twin, but he will also earn more income (the interest on saving in addition to the original income) than his twin. I agree with you Ellen. But the double-tax perspective--which I'm trying to understand--seems to rely on the claim that the interest income is NOT truly income. They seem to claim that the interest earnings merely reflect the fact that a dollar next year is worth less than a dollar today. They use the interest rate to discount future income. This cancels out any interest payment as income. That is, I think that's the argument. Eric
Double tax on savings
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
RE: Double tax on savings
Dividends (under a classical rather than imputation system) are paid out of income on which corporation tax has already been paid, but are counted as taxable income to the stockholder. -Original Message- From: Eric Nilsson [mailto:[EMAIL PROTECTED]] Sent: 18 February 2002 18:39 To: Pen-l Subject: [PEN-L:22970] Double tax on savings 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 ___ Email Disclaimer This communication is for the attention of the named recipient only and should not be passed on to any other person. Information relating to any company or security, is for information purposes only and should not be interpreted as a solicitation or offer to buy or sell any security. The information on which this communication is based has been obtained from sources we believe to be reliable, but we do not guarantee its accuracy or completeness. All expressions of opinion are subject to change without notice. All e-mail messages, and associated attachments, are subject to interception and monitoring for lawful business purposes. ___
RE: Double tax on savings
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
RE: RE: Double tax on savings
Thanks Max for the information and for sharing part of your underground classic. Max wrote, 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. To help me understanding the issue: Assume a 10% tax rate: Case 1 Income = 1,000 savings = 0 taxable income = 1,000 tax = 10% x 1000 = $100 summary income = 1,000 tax = 100 tax rate = 10% Case 2 Income = 1,000 savings = 500 INTEREST INCOME = 100 taxable income = 1000 + 100 = 1,100 tax = 10% x 1,100 = $110 summary income = 1,100 tax = 110 tax rate = 10% The second person pays more tax (but same tax rate) because they have more income. However, . They are instead the time-translation of some primordial stock. So the argument is that interest earnings is NOT really income. Rather, it is merely something that accounts for the different value of money at different times and, so, should not be taxed: it is merely the same money, but at different times? In this view, case 2 income is really 1,000 and the tax rate is 11%? If this logic is accepted, this implies that interest income is not income at all in any case. No? Really strange. Eric
