…you can easily implement a consumption tax with a Form 1040 that says: “How much did you earn this year? How much did you save? Now pay tax on the difference.” And you can make that tax as progressive as you like. — Steve Landsberg
Saving is discouraged by the US tax system by taxing interest, dividends, capital gains and inheritance. That is just plain dumb. And it’s unlikely to be fixed by a Congress intent upon “taxing the rich”. Sigh - meanwhile there’s a new book encouraging saving, included fixes to the tax code. Whatever Happened to Thrift?, reviewed in the WSJ by economist Steve Landsburg.
Mr. Wilcox does an excellent job of addressing these problems. He stresses education, and indeed the single best investment you can make in your children’s future is to teach them the returns to saving. You can do that by pointing to some of Mr. Wilcox’s graphs, or you can just quote the numbers I always quote to my students: Invest $1,000 a month in 3% bonds and in 40 years you’ll have almost a million dollars. Invest the same $1,000 a month in a diversified portfolio of stocks earning the historical average of 8% and you’ll have more than $3.5 million. Give it 50 years instead of 40 and that $3.5 million grows to $8 million. (All these numbers are corrected for inflation. If inflation runs at 2%, you can expect a 10% return on the stock market. In the end, you’ll have the equivalent of eight million of today’s dollars; if prices double, you’ll have 16 million instead of eight.)
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