I'm certainly no economist, but encouraging everyone to spend less money means businesses earn less money, means they can support fewer employees, means fewer people have jobs, means less money overall TO save. Isn't that the very definition of a recession?
I'd rather be the outlier mustachian in a booming economy, earning higher wages BECAUSE of others' frivolous spending, and thus saving MORE.
Not really. The poor aren't even spending a lot of their money in the working economy, it's getting lost on stupid stuff like interest, fees, pawn shops, rent-to-own ratholes, and so on. I would argue that the economy would be in far better shape if the poorest in the economy were given free budget counseling from CFPs or CPAs they they could learn how to escape the poverty trap and actually become part of the productive economy where saving and investing is possible. The poorest 10% are stuck losing money on dumb stuff like check cashing stores, payday loans, renting by the week, unreliable transportation at exorbitant interest rates that costs a ton in maintenance, and so on.
As for the solution posed by the article, I read it to be akin to removing the income and contribution cap on traditional IRAs. He says if you make $100k but save $50k and have a $30k standard deduction, you're taxed on $20k. The only way I see to "save" that $50k is if it's going into a special account like a traditional IRA, such that it doesn't count as ordinary income. That's a little weird, but I guess I could back such a system as long as they also removed the 10% penalty for early withdrawals. The money coming out would still be taxable, same as tIRA and 401k money is taxed as ordinary income today, just the idea would be to level out as much of the money to fit within the standard deduction. I read his theory to be that if you can't get income equality, at least you could strive for lifestyle equality. I very much like this idea in theory.
This seems fair enough to me on an individual level, but right away it occurred to me it would be a nightmare for small businesses and startups, since small businesses are often taxed as personal income, thus making it incredibly hard to reinvest profits in the business without making the whole thing rife with fraud as people pretend to start businesses just so they can expense a ton of spending and call it business expenditures. Of course big businesses who can afford armies of accountants and lawyers would still find ways to avoid paying taxes, same as they do today. It's the startups and small businesses that would suffer, and game-changing innovation typically comes from those style of businesses.
I think the term "income inequality" is only going to get more and more press over the coming decades, and that may put all of us who have significant savings at risk. I know in some countries they tax people on total net worth, not just income. Our little club would be the hardest hit, as we tend to be high net worth, low to modest income.
