My friend recently came up with an unusual idea concerning stimulating economy.
His argument ran roughly thus:
The federal government should place an annual tax on bank holdings above X amount (i.e., the rich). This would encourage them to withdraw their money and spend it, rather than have it being taxed.
My obvious objections to it are as follows:
-It partially defeats the purpose of private banking.
-It is unnervingly intrusive.
-It will not necessarily spur the rich into spending.
-It is unfair.
Now, can anyone think of any further arguments objecting to his argument, or any arguments supporting it? Just curious here.
Really dumb idea. Does anybody really think the rich keep all their money in a checking account? It is invested which is what creates jobs and moves the economy. Do you really want to tax and discourage savings and investments?
One of the chief principles to “fair taxation” is not to be taxed twice.* This is the chief argument against estate taxes and taxes on the income from dividends. Taxing deposits would obviously violate this principle.
That’s all I got.
*It seems to me that the sales tax also violates this, but to be honest, I haven’t really given it too much thought
Wealth generates income. It makes a lot more sense to tax the income than the wealth.
If you tax bank deposits, nobody subject to the tax will keep money in the bank any more. They won’t necessarily spend it, they’ll just shift it to other asset classes–stocks, bonds, real estate, artwork, collector cars. This will cause banks to fail and the government to get hit with a huge loss on deposit insurance. This is a very very bad idea.
The only form of wealth that governments have been able to successfully tax is real estate, in the form of property taxes. Everybody has to live somewhere, so we can’t shift all of our wealth out of real estate.
But we are already being taxed on our deposits. It used to not be like this. My parents are elderly, and only get $1,200 a month income from thier retirement pension. So they saved their money all of their life for their retirement, and although they are only getting about 2-3% on their jumbo accounts, the goverment sees to it that they get a percentage of that too.
Yes, well, the problem is that it is not clear there was really any deep principle here until Bush and co. decided to make it a principle…when applied to taxes like estate tax and the dividend tax that affect the wealthy. Since sales tax doesn’t affect the wealthy, it is not double taxation. It is simply taxing again because it’s another transaction. (Transfer of assets to heirs upon death is not a transaction because…well…it’s just not damn it!) See, you gotta understand how these definitions work for the benefit of those doing the defining.
in ontario canada we already pay income tax on bank interest!
this has been like this for awhile. another fine idea OLLY!
service charges eat up all this anyway.unless your rich.
only the ink is free!
gee loral “i thouhgt it was a fine idea”
duhuhuhu!:smack:
This is a total sidetrack, but how is taxing dividends considered “double” taxation, anyway? The dividend is only taxed once, as is the principal, right? So let’s say you earned $5000 income, and paid tax on it. You invest the $5000 and earn $100 dividend. You would only be taxed again on the $100 that you earned, not the entire $5100, right? Am I like totally missing something here?
Well, blowero, this is an oversimplification, but here goes: when you buy shares of stock, you’re buying a small chunk of ownership in the corporation. When that corporation makes a profit, it pays taxes on that profit. But who is “the corporation?” Well, it’s just you, along with everyone else who owns stock. So, when the corporation pays taxes on its profits, it’s actually you paying the tax, since money paid out in corporate income taxes can’t also be paid to you as a dividend.
Now, with its after-tax profit, the corporation distributes dividends to its shareholders, and they’re taxed on those dividends. But since those dividends just represent your share of the profits, they’ve already been taxed.
Think of an analogy: let’s say that your bank had to pay taxes on the interest your savings account earned. And then, when you withdrew your interest, you had to pay tax on it again. That would clearly be double taxation, right? Taxing dividend distributions is, at least theoretically, similar.
FWIW, I remember the administration of George H. W. Bush briefly and informally putting this on the table ca. 1991 (it was famously referred to as a ‘user fee’, which some thought was a rather disingenuous way to keep intact his ‘no new taxes’ pledge).
There was opposition from just about everyone, and nothing came of it.
First you have to define banks accounts. Are you talking checking, savings and money market accounts only? If so, the wealthy probably do not keep too much cash in those accounts to begin with. Those accounts have little or no earning potential. Money will already be invested where one thinks it will do the most good (i.e. earn the greatest return, depending on your definition of return). Generally speaking, bank acounts are only for immediate (less than 6 months) cash needs.
Look at the richest people world-wide. Their banks accounts will be much fatter than mine (hell, I think my son’s account is fatter than mine), but the bulk of their money is invested in whatever business they are in.