Dec

24

The Arbitrary $200k, and Its Problems

December 24, 2007 |

Many presidential candidates (or potential candidates) talk about raising taxes for those above a certain number, or lowering them for those below a certain number (or both).  They essentially draw a line and separate people in two groups: rich and not-rich.  There are many reasons why I believe this does a dis-service to this country.  Among them:

  • Arbitrary Number Catches With Middle Class -When you put a number on a law, it eventually looses its meaning due to inflation or economic changes.  Even if you change or adjust it for inflation, there is a kind of inflation never captured: the growth of society into a richer one, where everyone can buy more of the same.  Also, politicians don’t like to eliminate meassures that reduce the government income — they tend to leave them around — just like happened with the Alternative Minimum Tax.
  • Social Classes - It creates the concept of social classes.  Instead of representing a fluid society, where you can climb from one level to the other with relative easy (when compared to other countries), it shows a great chasm - a boundary line.  It sepparate people in us and them, in those to be explited and those who eploit (and both sides will argue the same thing about the other). 
  • Brakes on Personal Development - I have heard so many people give the taxes excuse for not growing (financially).  Something like:  “it doesn’t make sense to take that possition, as most of the salary increase will go in taxes“.  Making a bigger chasm would aggravate this kind of situation.
  • $200,000 income is not rich - It could be a big family.  It could be a super-saver who doesn’t live like rich but will save society a bundle when he/she retires (by not requiring government help).  Or it could be someone saving to start a business.  If you want to tax someone, tax the guy who buys the car over $100,000, or the boat over $100,000.

I think the tax system is good as it is.  Could be better if there was a flat consumption tax, but since something like that would be so difficult to pass on the congress, I can just be happy with our current system.  I think that if you want to help society you lower government spending overall (to balance budget), and decrease taxes across all levels - to drive economy and motivate people to earn and keep more, invest more, and spend more.

Don’t make the mistake of drawing an arbitrary line to decide who is Rich and who isn’t.


Comments

3 Comments so far

  1. Minimum Wage on December 24, 2007 9:00 pm

    If this society has been growing into a richer one within my lifetime, I’ve missed it. I can buy less - not more - of the same today as I could have in 1980. If the economy is growing, I’m not sure how much more economic growth I can afford.

  2. Justin on December 30, 2007 12:07 pm

    The argument that 200,000 income has anything to do with saving is false. Income has very little to do with saving, it’s spending less than you earn and that can be at almost any income level.

  3. Living Off Dividends on January 6, 2008 7:12 am

    I somewhat agree with you.

    taxing consumption is fairer (unless of course you’re living way beyond your means) than taxing income and then handing out deductions, and then trapping you with AMT.

    India has a very straightforward tax system with 0% for long term capital gains on stocks and dividends. there’s also a 12.5% service tax plus local sales taxes.
    that encourages investing in economic growth and discourages spending. simple, yet effective.

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