The partisan divide is bridged by nuance. Neither side is all right or all wrong. This is why Jeremiah maps the political space into two dimensions. Today, we apply the two dimensional approach to tax policy.
Discussions about tax policy have degenerated into class warfare because they rely on a simplistic “rich versus poor” paradigm. Never mind whether the poor actually receive the benefits. Never mind that the tax code is riddled with backdoor spending. If you’re not helping the “middle class,” then you’re protecting the rich.
This is where Jeremiah adds a distinction between savers and spenders.
America has an extremely progressive tax system, by international standards. Other countries use a flatter income tax, plus a sales tax. Our federal spending is funded entirely by the income tax. Sales taxes are unpopular because they are “regressive,” meaning that the lower your income, the bigger the tax bite as a share of that income.
Taxing consumption hurts the poor, relative to the rich, but it encourages people to save rather than spend. When making policy, four stereotypes are better than two:
Poor and Frugal
These people may be poor, but they scrimp and save and try to build a better future. The Fed’s current policy of debt monetization is killing them. They’re not making any interest on their savings, and food prices are going up.
Poor and Profligate
These people spend every dollar they get. Maybe that’s why they’re poor. They pay no taxes, so they don’t care how tax money is spent. Paying a sales tax would encourage them to put some money in the bank.
Rich and Frugal
These people have money, and they mean to keep it. Maybe they started out poor and frugal, back when interest was 5%. Many old people are in this category. They are “rich” now, only because they scrimped their whole life.
Rich and Profligate
These people are splashing their money around everywhere. That’s good for the BMW dealer, but our economy actually does better if they keep it in the bank. The best way to tax these people is with a luxury tax.
The class war paradigm is a bad guide to tax policy, and a bad guide to monetary policy. The result is that we are punishing people, both rich and poor, for productive behavior.