By Larry Marsh, Kansas City Star Midwest Voices columnist 2009
Greed reveals itself not in income but in consumption. Warren Buffet has lived in the same modest house since 1958, but other wealthy people live in enormous houses costing tens of millions of dollars. Many famous people have just one or two homes and just a few vehicles while others spend lavishly on eight or nine homes and dozens of cars.
It really doesn't hurt anything for people to have bank account balances with lots of digits. Even if they hoard money in their mattresses, the Fed can always increase the money supply appropriately to match our economy's potential for producing goods and services. If it motivates some and feeds their egos to accumulate tons of money, that's fine. It's only when they go to use that money to drive up prices and take resources away from the rest of us that it really matters.
Saving money has lots of advantages for both the individual and our economy as a whole. If people keep lots of money stashed away for a rainy day it will help even out the ups and downs of our economy. When people lose their jobs or have unexpected medical expenses, having a hoard of cash can ease the financial pain and help keep the economy on a more even keel.
There are only two things you can do with your income: spend it or save it. Right now we tax income. What if we only taxed what we spend? How could we do this without placing an excessive burden on poor people who spend a much higher proportion of their income than rich people?
The answer is to stop taxing most of our savings and turn our progressive income tax into a progressive consumption tax. We want to discourage excessive individual consumption while maintaining strong aggregate consumption and savings. The ideal consumption tax would have zero or very low tax rates for modest consumption and progressively higher rates as consumption reaches excessive levels.
This requires adjusting both fiscal and monetary policies simultaneously. In fiscal policy we could allow all interest income and direct-deposited income as well as self-employed income deposited within 60 days to be tax-deferred. In monetary policy we increase the money supply slowly to take up the slack as people respond to the incentive to save more money and spend less. The increased money supply will encourage business investment and help maintain strong demand for our economy's goods and services.
We all need to save more money for retirement and for all those medical expenses in our golden years that might not be fully covered by our health insurance. Since most medical costs occur towards the end of life, saving more money now for use later on makes lots of sense. Our tax laws need to be changed to reflect these realities. In the long run our economy will be healthier and so will we.
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Also see:
Define energy independence in terms of both oil price and quantity
Carbon tax better than trying to pick alternative energy winner
Deprive petro-dictators of oil money with a price floor on crude oil imports
Law professors propose new gas tax with categorical tax rebates
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Saving for our retirement years
We currently are forced by the Federal gov't to put 15.30% of our income each year into Medicare and Social Security for our retirement. If you averaged a salary of $50,000/year, when you retired it would be worth $3.5 Million.
I don't know about the rest of you, but I could have paid for my retirement and healthcare coverage with $3.5 million.
And Medicare and Social Security are going bankrupt.
Our gov't robbed us of the money WE PAID.
converting wealth…posterity
Your stated choices for what we can do with wealth, spend or save, seem simplistic, I believe.
People with wealth often convert their wealth into art, for example. Think of the many ways that the wealthy patrons of this city have nurtured architecture, music, libraries, dance, music, sculpture, painting, and theatre.
Outside my window, every day I watch our new Performing Arts Center come to life.
People with wealth often appreciate the idea of posterity...
Tom Ryan
The Crossroads
Good point, Tom.
Daniel Lawson also noticed this and pointed out that people can also lose their money or donate it as you suggest. Sometimes I keep things simple for purposes of exposition, perhaps too simple. My friend Patrick Rooney who directs the Center for Philanthropy will no doubt call me on this one as well.