April 28, 2021

TAX WHAT YOU DON'T WANT, NOT WHAT YOU DO:

Will Covid Force the U.S. to Re-Examine Itself, Including Its Taxes? (Reuven Brenner, April 28, 2021, Real Clear Markets)

The tax code classifies people as "rich" by looking at their income and their wealth, and subjects them to higher taxes.  The tax code does not distinguish between those who don't spend on anything that would identify them to the outside world as "rich": mansions, art, fashion, jewelry or yachts, say a Warren Buffet, and those indulging themselves in such conspicuous consumption.

The former are workaholics, entrepreneurs, who pour back most of their income into their business, start-ups, venture capital and keep a fraction in savings. Outsiders will not perceive much conspicuous consumption - except, perhaps, having an apartment in Manhattan or Silicon Valley close to workplaces. Is this person "rich'?  Yes. Does he behave as "rich," becoming an eyesore for the envious and those who covet? No.

What happens if you tax away a large fraction of such people's income? They will have less to invest and save, matching talents they select with their capital.Instead the government will do the matching - drawing on politicians and bureaucracies far more limited experience in carrying out such matching in an accountable manner.

If a rich person according to the tax code classification spends money on mansions, vacation homes, cars, private planes, jewellery, art, high-fashion and fancy vacations, society would be better off taxing such consumption, rather than taxing too high the savings and investments of workaholic entrepreneurs and innovators. This argument suggests that a significant part of the tax burden should thus take the shape and form of sales taxes. 

Posted by at April 28, 2021 8:50 AM

  

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