Whom Is The Middle? A Taxing Question

Mitt Romney has an idea to create more saving by Americans. He proposes to eliminate taxes on interest, dividends, and capital-gains (hereafter: savings’ earnings) from middle class savers. This obviously has two advantages: first, it reduces the middle classes reliance upon a governmental program like Social Security for their retirement needs; and second, it adds to the financial resources available to help stimulate the economy. Sounds like a good idea doesn’t it? But if a politician proposed it, doesn’t that mean that there is something inherently wrong, stupid and untrustworthy about it?

Well, let’s not go to the typical extremes that politicians go to and start judging things based on some ideological basis without any need to think, understand or evaluate. Let’s not be a Democrat or Republican; rather let’s be intelligent just to try something different.

To make such an assessment there are a couple of things that we would need to know. For example, what is the middle class? What is the income level that qualifies someone for not having to pay taxes? This is important because who and how much someone can benefit from this depends upon simple things like what the cut-off point is, or what counts in setting that cut-off: wages only, rental income, royalties, all the varieties of income forms that will allow for the unanticipated and unintended consequences of what seemed like a good idea at the time.

I assume that anyone below this middle-class upper limit would be qualified to get the no-taxes on savings’ earnings. So even those who don’t earn enough to get by can save and reap the bounty of this idea. Ok, it doesn’t do anything directly to help the poor; but it’s not a program aimed to help the poor so being criticized on that is not really fair.

For those that do manage to have some money that they can prudently set aside for some other purpose than subsistence that they could choose to save it. So we can imagine that there is a population of individuals that range from those who can save very small amounts each year to those who can elect to save considerably more up to the limit of income or some fixed limit that may be imposed upon the program. The tax benefit thus derived from this program will be proportionately larger for those most likely to be able to save the most, those at the upper middle income level.  Assuming I am one of these high-end beneficiaries, this makes perfect sense to me. It does of course seem to do this at the expense of those less fortunate than myself, but again I am better off so that is clearly the socially responsible thing for a constitutionally structured democracy would intend. I think that I lack a sense of why the government should be implementing a program that preferentially benefits me more than those of our nation that are unable to take advantage of it. Well we do that a lot already, like for the very wealthy which I would like to become one day, so it is a consistent approach to serving citizens unequally.

Now what about those poor hundred people who just missed the middle-class savings’ limit by one dollar? They get classically screwed! So I guess we will have to find a way to adjust the program so that it is somehow progressive. There are at least a half-dozen variations on the theme that could be adopted here, so I am sure that Congress will find a way to pick an approach that is really bad or at least the most inequitable form that can be made to sound fair and balanced.

I can hardly wait for this proposal to make it way through the corridors of Congress and into law. The opportunities for fraud and abuse are already percolating in my head. Well, what has Congress ever done that wasn’t fraught with greater problems and harm than the imaginary benefits that it would provide?