Saturday, August 11, 2012

How can I resist?

Two from Cochrane.

I quoted him here...

tax consumption not savings

...and I quoted him here:

most economic analyses don't look at the long-run, growth effects of tax distortions.

Yep. (Like taxing consumption, but not savings.)

I refer you to my recent remarks on savings.


Jerry said...

I don't understand the "don't tax money in savings" thing. Taxes are basically you paying the government for services, such as maintaining law and order, protecting you from foreign invasion, maintaining roads, etc.

The money you have in savings (and stocks, real-estate, etc) is still protected and still benefits from that service. (e.g. police investigate bank robberies.)

If the government made no attempt to protect money in savings (e.g. if the policy was to let criminals or foreign soldiers just come in and rob banks (steal stocks, destroy real-estate, etc) unopposed), then it would make sense to not tax money in savings.

But, it's not the case. So it's just an absurd claim to me that it shouldn't be taxed.

The Arthurian said...

Nice, Jerr. I guess, from the other side, if they *don't* tax savings and other forms of wealth, taxes on income will have to be higher to provide those protections. Then there are consequences for those with a low Marginal Propensity to Consume, and different consequences for those with a high MPC.

Cochrane calls these tax distortions.

Jerry said...

I think the point I was trying to get at (which, I see, I forgot to make!) was that anything other than a net-worth tax is a distortion. i.e. the thing that a-priori makes sense is to pay the government for the services they provide you (which are basically valuable in proportion to your net worth). So, anything deviation from that is a distortion.