Tax Evasion

[Doktor]

I deliberately skipped stocks only classic savings.

Stocks are investments not savings (at least to me).

Never put it as an absolute, but more like an idea to make people invest their money instead of just dropping them in the bank.

[ArmchairGeneral]

I deliberately skipped stocks only classic savings.

Stocks are investments not savings (at least to me).

Never put it as an absolute, but more like an idea to make people invest their money instead of just dropping them in the bank.

Okay, I think I see where you're coming from now. Where would you draw the line, though? Savings accounts? Credit unions? Money market accounts?

[Doktor]

Okay, I think I see where you're coming from now. Where would you draw the line, though? Savings accounts? Credit unions? Money market accounts?

Anything that is considered "safe".

BTW, you had deflation only in 2009.

[ArmchairGeneral]

Anything that is considered "safe".

Wheesht. That could be a big swathe. And you'd want numbers rather than words for the actual law (even though I probably wouldn't understand them, what with knowing jack all about the nitty gritty of finance...).

BTW, you had deflation only in 2009.

Yes, but we're still dealing with the effects of that deflation. I thought about adding a qualifier when I said that, but it messed with the flow. I'll always sacrifice accuracy for literary quality...

Anyway, I'm not so sure that discouraging saving is a good idea at this point in time, given the absolutely abysmal savings rate of Americans. Social Security and Medicare are strained enough as it is. Maybe in Japan...

OTOH, I see your point about increasing consumption. Seems like there should be a better way of doing it, though.

[Doktor]

Just to be clear, I fully understand the impact of taxing the savings. It can't be done in one country alone. It has to be done everywhere. US can make it happen.

I am not hardcore on this, if there are ways to "force" those with high savings to actually invest them, I am OK with it. Am just tired of people postponing payments and investments "because of the crisis", while stocking savings in the banks (or T-bills).

[ArmchairGeneral]

Just to be clear, I fully understand the impact of taxing the savings. It can't be done in one country alone. It has to be done everywhere. US can make it happen.

I am not hardcore on this, if there are ways to "force" those with high savings to actually invest them, I am OK with it. Am just tired of people postponing payments and investments "because of the crisis", while stocking savings in the banks (or T-bills).

The thing is, I'm not convinced this is happening. I don't recall seeing any reports of a dramatic increase in saving, among average Americans, anyway. Not saying it doesn't exist, but I'd want to see the evidence. I have seen evidence that as much as half of the reduction in consumer spending in America is due to reduction in spending on durable goods and houses- basically cars and washing machines and stuff. (I can hunt down a link if anyone wants...if not...I'm lazy...) Stuff that you typically buy on credit. Would taxing savings increase spending on such things? I'm not sure I see it.

Trying to imagine my reaction to a tax on savings, and it doesn't seem to me that my first impulse would be to take out a honking big loan and buy a car...

Maybe it would increase investment in riskier options, but I'm not entirely sure that's what's needed either. IIRC, banks are already sitting on big piles of cash, they're just not loaning much-I'm not clear on how much that is due to their unwillingness to take risks, and how much is due to a lack of demand for loans. But either way, I'm not sure that pumping more money in will help things- or at least not the amounts we're talking about here. Not really sure how much we are talking about, actually, but lack of data has never stopped me from BSing on a topic I don't know much about in the past, and it won't stop me now, nosiree...

Anyway, I guess that's one of the big questions that I've never seen clearly answered about this recession- is the real problem now the lack of loans and investment, or the lack of consumption? Or something else?

[DOR]

What are the rates on savings at the moment?

The rate this week / month / year is wholly unimportant in a discussion of this nature.
As I read the proposal, the tax on net interest wouldn't be worth collecting.

[astralis]

AG,

don't recall seeing any reports of a dramatic increase in saving, among average Americans, anyway. Not saying it doesn't exist, but I'd want to see the evidence. I have seen evidence that as much as half of the reduction in consumer spending in America is due to reduction in spending on durable goods and houses- basically cars and washing machines and stuff. (I can hunt down a link if anyone wants...if not...I'm lazy...) Stuff that you typically buy on credit. Would taxing savings increase spending on such things? I'm not sure I see it.

there is evidence for an uptick in savings rates but not by much-- what HAS been lowering the past few years is the amount of credit card debt.

people are saving more, but for the most part their "savings" are going into paying off previous purchases.

Anyway, I guess that's one of the big questions that I've never seen clearly answered about this recession- is the real problem now the lack of loans and investment, or the lack of consumption? Or something else?

the recession is demand-driven, or rather, lack thereof. when the housing and credit bubble popped, demand went off a cliff as people could no longer borrow on credit.

on a larger scale, what we seee is thus:

globalization and technological growth tend to benefit the most educated/most wealthy to begin with --> stagnant income growth for middle class --> middle class tends to model their purchasing decisions on the upper-middle class/wealthy, whose incomes have NOT stagnated --> borrowing on credit, financed by china and booming real estate values --> when bubble crashes, middle class faces extreme debt problem --> overall demand crashes --> recession.

what we will see over the next few years, absent another dramatic economic shock such as europe falling off a cliff/china housing bubble pops, is continued de-leveraging by the american consumer. as i do not see incomes dramatically expanding for the middle class any time soon -- same structural problems remain -- we will see demand go on an uptick, but not to pre-crisis levels.

none of the current crop of candidates, the current president included, have a platform for dealing with the structural problem that the US faces.

[Bathursto]

Just to be clear, I fully understand the impact of taxing the savings. It can't be done in one country alone. It has to be done everywhere. US can make it happen.

I am not hardcore on this, if there are ways to "force" those with high savings to actually invest them, I am OK with it. Am just tired of people postponing payments and investments "because of the crisis", while stocking savings in the banks (or T-bills).

No force required. When you put your money into a bank, the bank goes out and invests it for you. That's how they make their money. And when you buy government bonds, you are simply giving the money to the government to invest. If the banks are not making loans and starting new enterprise, it's because we have to pay down the debt we've already racked up with too much investment.

[ArmchairGeneral]

AG,



there is evidence for an uptick in savings rates but not by much-- what HAS been lowering the past few years is the amount of credit card debt.

people are saving more, but for the most part their "savings" are going into paying off previous purchases.

Yeah, that's what I figured.

the recession is demand-driven, or rather, lack thereof. when the housing and credit bubble popped, demand went off a cliff as people could no longer borrow on credit.

What exactly do you mean here? They could no longer get credit cards? I'm not sure I've seen this argued before. Nor seen evidence of it. That said, it doesn't really answer my question, even if it were true- is that a problem of demand, or a lack of investment (i.e., loans).

on a larger scale, what we seee is thus:

globalization and technological growth tend to benefit the most educated/most wealthy to begin with --> stagnant income growth for middle class --> middle class tends to model their purchasing decisions on the upper-middle class/wealthy, whose incomes have NOT stagnated --> borrowing on credit, financed by china and booming real estate values --> when bubble crashes, middle class faces extreme debt problem --> overall demand crashes --> recession.

what we will see over the next few years, absent another dramatic economic shock such as europe falling off a cliff/china housing bubble pops, is continued de-leveraging by the american consumer. as i do not see incomes dramatically expanding for the middle class any time soon -- same structural problems remain -- we will see demand go on an uptick, but not to pre-crisis levels.

none of the current crop of candidates, the current president included, have a platform for dealing with the structural problem that the US faces.

It's an interesting model, I'm not sure I've run into anything similar before. Any links where I can see discussion of it, or is this unique to you?

[astralis]

AG,

What exactly do you mean here? They could no longer get credit cards? I'm not sure I've seen this argued before

loans are now a lot harder to get than they used to be. the amount of money you have to put down to buy a house has increased...in some cases, from 2% to 20%. credit card APRs have increased. in short, the cost of borrowing has gone significantly up.

That said, it doesn't really answer my question, even if it were true- is that a problem of demand, or a lack of investment (i.e., loans).

the problem is demand. the low US savings rate is a medium-term problem, not a short-term one.

It's an interesting model, I'm not sure I've run into anything similar before. Any links where I can see discussion of it, or is this unique to you?

it's a meld of several existing models that explain the individual crisis separately...but the overall theme is the same. see the following:

http://www.wallstats.com/blog/wp-con...idecrisis2.jpg

the effects of globalization/technology on income disparity is also well known; mix that with behavioral economics and it is not hard to see where the impetus for the 2000s dip in the already-low american savings rate came from.

[scruffer]

It also seems larger businesses are 'in on this': Barclays Bank says it payed £2bn in taxes to the Revenue... fine but most of this, it turns out, was employees contributions. In the same year (2009) it payed only £113m in corporation tax to the UK - or 2.4% of it's profits. In other words Barclays employees all pay their 'fair share' while the company itself pays very little. See: BBC News - Barclays UK corporation tax bill for 2009 was £113m

Looking at the news story it seems to say that Barclays actually paid 25% or more of their profits in taxes. They seem to say that most of their that 25% was earned in other countries so Barclays paid taxes to those countries and lowered the amount owed to the UK.

Also looking at their financials they report that they paid nearly 1.1B in taxes in the 8th Note.

I wonder what the paper is saying. Did the UK government not collect 900m of the 1.1b? Or did Barclays pay 900m of their tax to other countries leaving them only 113m to pay to the UK?

[DOR]

Just to be clear, I fully understand the impact of taxing the savings. It can't be done in one country alone. It has to be done everywhere. US can make it happen.

The US taxes income from savings; Hong Kong doesn't (and, neither has meaningful capital controls, and both guarantee deposits).

One would then expect all savings in the US to flow into HK, but that hasn't happened.

Hence, there are other factors at work, such ignorance, fear of "foreign" investments (i.e., savings), etc.

[scruffer]

The US taxes income from savings; Hong Kong doesn't (and, neither has meaningful capital controls, and both guarantee deposits).

One would then expect all savings in the US to flow into HK, but that hasn't happened.

Hence, there are other factors at work, such ignorance, fear of "foreign" investments (i.e., savings), etc.

If an American puts their savings in HK to avoid taxes on interest, the US would still tax them on that income the same as if they earned it in the US. So you would not gain anything.

[DOR]

If an American puts their savings in HK to avoid taxes on interest, the US would still tax them on that income the same as if they earned it in the US. So you would not gain anything.

That's unique to America: tax people whereever they might be.
Substitute Canada, and the basic principle holds true.