Sunday, March 21, 2010
Hey, Big Spender: You Need a Surtax
This article plays with the idea of families that spend more than $500,000 should be charged with a surtax. With the unemployment rate at still a high 10%, this plan is supposed to help lower that number. A progressive consumption surtax would produce immediate, off-budget economic stimulus by giving wealthy families powerful incentives to accelerate future spending. For example, a family that had been planning to build a new wing onto its mansion, or buy a yacht, would want to make those purchases now rather than be taxed on them later.
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This would be great for very short-term results, but in the long term it would reduce overall consumption and lower the steady-state, which is not something a government should aim for. In the long run, our economy will move towards a desirable steady state and we have been seeing unemployment drop or remain idle for the past few months. A tax like this will ultimately make our natural unemployment rate higher than it has been in the past.
ReplyDeleteMy interpretation is slightly different from Adam's regarding the long-term implications of the progressive consumption tax. The consumption tax will not only provide additional funds to the government budget but also serve as an incentive for people to increase their savings. Both of which should enhance the rate of saving and hence boost the steady-state level of consumption and investment in the US. The tax will ultimately help to reduce the US's natural unemployment rate, I think.
ReplyDeleteBased on the current situation, I think it is a feasible policy. It would increase the saving rate among wealthy people(which would help increase the total consumption rate finally), and make government have more funds to improve the problem of unemployment. Also, in this special phase, people who earn much would probably be willing to accept the surtax, since a better economy always a safer way to guarantee their future income.
ReplyDeleteAccording to this article, the author suggests that surtax should be implemented in our economy. In this way, big spenders who earn more than one million annually and spend more than 500,000 per year are more likely to be taxed than other general public. The method is brought up under a situation that last year’s stimulus spending has been used up and the economy need another money boost.
ReplyDeleteI agree with Cuong about this article. The goal of this surtax is to lower the unemployment rate. With this sudden injection of cash into the economy, because people don't want to be taxed, will only do good I feel like.
ReplyDeleteThe current low interest rates were supposed to provide incentives for consumers to spend and take loans from the bank however this has certainly not been the case and I like the possibility to inject spending and boost consumption in the short-run when the economy requires it the most. Furthermore the fact that the tax is being placed on spending of $500,000 upwards in this economy targets a specific demographic of the "rich" and thus those who could afford it.
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