Make no mistake, the government wants your savings. They want as much as they can get politically. The president recently floated the idea of taxing 529 plans, used to save for college, to pay for community college for people other than your kids. Why should the money you earned, and saved, go to your family? Better for the government to take your money from you so that it can give a gift to political allies.
Some people might call this theft. But not us. Oh, not us.
As Megan McArdle explains, the assault on 529 plans (though thankfully it’s not going anywhere) is likely only the beginning. The middle class may very well see more efforts to raise taxes on them, soon.
Let’s just say that if you continue to live in a so called “blue state” you have been warned.
Yes, I know that tax rates used to be much higher in the middle of the 20th century. However, eye-popping, high-double-digit rates fell on a much smaller share of the population, and therefore didn’t raise all that much money; they were mostly symbolic, especially since they were combined with a much more generous array of deductions. Also, there’s a reason that countries largely stopped trying to enact such heavy tax rates; in an era when global capital, and people, move pretty freely, they turned out to be mostly counterproductive. This is also why we don’t try to tax the bejesus out of capital income, much as many would like to; old capital flees, and new capital doesn’t get formed, as savers decide it’s not worth it.
What that tells us is that politicians will need to reach further down the income ladder in order to fund new spending — indeed, to fund the spending we’ve already done, in the form of entitlement promises. Where will they go for that money?
After you and me.