Tuesday, January 08, 2008
Regressive? Not so fast.
Megan McArdle says:
Few of the wealthy are Scrooges who gain massive positive utility merely from staring at their stock certificates. Most of them, like most of the rest of us, enjoy their wealth only when they spend it on some form of consumption. And when they do that, they pay the same tax as the rest of us. Until they spend it on consumption goods, they are giving it to the rest of us to make our economy more productive.
I would say they are 'risking' it or 'loaning it to" the rest of us, not giving. Unless capital is free. But my non-nitpicking issue with her post-
he first is that it moves us from a more progressive system: in the future, the poor would bear a heavier share of the total tax burden than they do now. (Forgive me if I suspect that for many of its boosters, this is a feature rather than a bug). I don't feel like the poor are such extravagant free riders that this should be a priority of tax reform.
But if the rich consume more than they would have reported on their W-2 (as many have over the past years), this might not be true. Furthermore, as her first commenter points out, there is a one-time wealth tax built into the conversion.:
What does the Fair Tax say to the guy who saved a $1mm in mutual funds, paying income and capital gains taxs all the way, who retires and wants to spend it? Does he get hit with 23% tax? At least, under our current system, he can spend assets with only state sales tax to worry about.
Yep. Like lowering capital gains and allowing Roth conversions (2010!), we could look forward to a non-repeating injection of tax revenues.
Should have added that to my list.
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