Wednesday, August 17, 2016

A Sufficiently Progressive Tax Code

To the question, "How does one know if a sufficiently progressive tax code has been achieved?", a place to start may be with an examination of saving rates among various income groups. 

Currently, high income earners save at the rate of approximately 25% and median income earners save at a rate of less than 10%.  Excess savings is a drag on the economy.  A strategy to create a sufficiently progressive tax code requires removing excessive saving from the economy.  A sufficiently progressive tax code (in the current environment) will raise the tax rate on high income earners and lower the tax rate on median income earners until the historical data shows a parity among the rates of saving for these two income groups.  Once this is achieved (perhaps a saving rate of 12% for each of these two groups), excessive saving will have been driven out of the economy.

Saving rate parity among high and median income earners will signal a sufficiently progressive tax code.  A sufficiently progressive tax code will help to grow the economy by putting more money into the hands of those who would spend it.  This will create a higher demand for goods and services.  Greater aggregate demand will grow the economy and will create more jobs and, over time, higher wages.
"I am indeed rich, since my income is superior to my expenses, and my expense is equal to my wishes."  Edward Gibbon, English historian (1737 - 1794)   3/17/2014

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