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1. There appears to be a sharp increase in the percentage of wealthy people, in passing from the age-cohort of 50, to that of 60.
2. Wealth seems to peak at around age 60-65, and thereafter declines (the numbers for age 90 look unreliable). For the very affluent, wealth peaks at a later age, than for the moderately-affluent.
3. While quite a few middle-aged American households have a net worth of $1M, it would appear that less than 10% of nominally-millionaire households have $10M or more.
Of course, this is a very cursory and simplistic “study”. But I was surprised by the trajectory of wealth vs. age. I would have expected a very sharp increase in the 20s and 30s, followed by a gradual but monotonic rise thereafter. It’s surprising (to me) that people become less wealthy in deep old age.
I am also surprised by the sharp dropoff in percentages, as one goes up the millionaire scale. For example, $4M at age 65 puts the household at the 95% level. But $10M at age 65 puts one at 99.16%, and $25M at 99.89%.
A lot of wealthy people can be rather cheap with their money though.... there's a reason many of them have money... plus how do you log what you consume? Do you have to track everything you buy all year long? Taxes should be made simpler, not more complex.
How do you log what you consume? It is just arithmetic: you log what you earned, just as you do today. Then you log what you saved with backup from bank statements & brokerage accounts. Then subtract savings from earnings and that is your consumption (by definition), and that's what you tax.
Yes, tax simplification matters. We all get W-2s, 1099s, and bank account statements and brokerage statements. They provide all the information needed to support (a) earnings, and (b) savings. You just subtract savings from earnings, and the difference is what you pay taxes upon.
Tax simplification isn't by itself enough. It also matters what the incentives are at the margin. The current system provides a disincentive at the margin because we each pay the marginal income tax rate on an extra $1 of income. With a progressive consumption tax, the marginal rate on an extra $1 of income is zero -- that provides an incentive to work rather than to stay at home.
i would simply charge those who pay no income tax a minimum tax just for living in this country . almost 1/2 the filers pay no income tax . even 25 bucks wouldn't hurt . they all seem to have lots of money for i-phones and lottery tickets . but this is another discussion .
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Originally Posted by Blondy
You and me both. Everyone should have some skin in the game.
I personally don't see what would change with your progressive consumption tax.
First, let's all agree we need a government and we need to fund the government. Let's for the moment ignore the issue of how much government we need -- let's just stick with the amount of government we have and say we need to fund it.
So, what's the difference between a progressive consumption tax and a progressive income tax?
It is all about the economic analysis at the margin.
Everyone agrees that when you tax something, you discourage it: that's one reason we have "sin" taxes on tobacco products and alcohol.
Sooooo.... right now we discourage people from earning more money at the margin, because we tax earnings. Why is that bad? Well, earning money is a measure of your value-add to society. Sooooo... right now we discourage people from adding more value to society. I think that is dumb. We should encourage adding value to society at the margin rather than discourage it through a system of income taxes.
A great feature of a consumption tax is there is a big incentive to earn more money (that is, add more value to society) at the margin. If someone earns an extra $1,000 they can keep it all so long as it is saved & invested. If they really, really want to spend it they can - but it is discouraged because of a tax on consumption.
The consumption tax could be a flat tax as you suggest -- but most social justice warriors would puke at that thought. So, we can get the best of both worlds by making the consumption tax progressive just like our current income tax is progressive.
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Originally Posted by FIGHTONSC
The top 1 percent of earners already pay nearly 40 percent of the entire tax burden (see above link), whereas the bottom 50 percent only accounts for 2.7 percent of the total U.S. tax burden. The middle and upper middle class picks up the remaining 57 percent.
The discussion of who pays how much in taxes is separate from the discussion of what the incentives are at the margin. For example, if we had a 100% top marginal tax rate, no one would ever bother to work enough to put themselves into that 100% top marginal tax rate because they would be working for free. Everyone can agree that's a dumb idea.
That's where a consumption tax to replace an income tax makes sense: the incentives are there to earn (add value to society) as much as you can. The incentives are there to save and invest.
...Well, earning money is a measure of your value-add to society.
Earnings are a measure of how well we negotiate, or how well we fill a scarce niche, or perhaps, how adroitly we insinuate ourselves into the system. They are only tangentially a measure of how much we add to society. By way of example, some people believe that a highly-paid government bureaucrat adds little value to society, or perhaps even subtracts from it. And yet this person is… highly paid. Public school administrators earn considerably more than teachers. Do the former add more to society, than the latter?
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Originally Posted by SportyandMisty
...That's where a consumption tax to replace an income tax makes sense: the incentives are there to earn (add value to society) as much as you can. The incentives are there to save and invest.
You and I would both benefit from a consumption tax, as opposed to one on income (and especially one on capital gains or dividends). But would society overall benefit? If I save my money, am I doing more for the economy, than if I blow it on booze and cigarettes (or perhaps a new sports car)? If we became a nation of consummate savers, instead of consumers, what would happen to the economy?
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