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From: mat@hou4b.UUCP (Mark Terribile)
Newsgroups: net.legal,net.taxes
Subject: Re: Abuse of social contracts. (tax system)
Message-ID: <1340@hou4b.UUCP>
Date: Sun, 24-Feb-85 00:55:54 EST
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Posted: Sun Feb 24 00:55:54 1985
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Xref: watmath net.legal:1451 net.taxes:724

>Or how about taxing dividends and investment income at a higher rate
>than ordinary income (read real work).  This would be an incentive for
>people to work and be creative rather than live of somebody's elses
>work.  Otherwise, in the extreme case, you could have everybody investing
>and nobody working.

Seems to me we live in a society where it makes more sense to spend money
and go into debt, with interest taken as a deduction, than it does to
put money in the bank, and have your compounding shot to hell by income tax.
Take a look at a set of compound interest tables sometime.  If you are being
taxed at an overall rate of about 30% in the US your marginal tax rate is
much, much higher.  And if you take 11% interest at a marginal tax rate of
40% you get a real interest rate of less than seven percent.  The doubling
time for 11% is about 7.1 years.  For just under 7% it's over ten years.

Given the fact that the US reinvests less of its GNP than most of the other
industrialized nations, it would seem like a better idea to remove the tax on
relatively small amounts of personal savings and remove the deduction for
interest payments on most loans (with a possible exception for mortgage on
a primary residence)

The interest deduction has a rather strange effect.  If I take out a four
year loan on a car, the first year my interest payments (as opposed to
payment of principle) will be relatively large, and, being deductible, will
increase my disposable after tax income more than the interest in the
last year of the loan.

What kind of sense does this make?
-- 

	from Mole End			Mark Terribile
		(scrape .. dig )	hou4b!mat
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