Tuesday, October 12, 2010

Time for a Net Worth Tax?

Two systemic problems in our current economic configuration: Some do not save enough. Some do not spend enough.

Saving more improves personal balance sheets, and makes more money available for investment. After a decade of over consumption for those of below average net worth, Americans are beginning to save more.

The downside to saving more, however is that consumer spending by this group will not be the robust engine of U.S. economic growth that it has been in the recent past.

Want to encourage consumption by those who can afford it (given the importance of consumer activity to the economy)? Want to encourage saving by those who don’t save? Tax net worth above the national average at a progressively higher rate. Those below the national average would pay no net worth tax and those above would pay progressively more. 50th percentile maybe 0.01% (marginal rates) of net worth, 75th percentile maybe 1% of net worth, 99th percentile maybe 2 percent of net worth.

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