Jeff V. sent me an article last Christmas, but I never got a chance to mention it. I’m making amends today.
Three years ago at Slate Magazine, Steven E. Landsburg wrote an article in praise of misers: “What I like about Scrooge”. Though the piece is funny, its message is very serious: saving is a good thing and ought to be rewarded.
In this whole world, there is nobody more generous than the miser — the man who could deplete the world’s resources but chooses not to. The only difference between miserliness and philanthropy is that the philanthropist serves a favored few while the miser spreads his largess far and wide.
If you build a house and refuse to buy a house, the rest of the world is one house richer. If you earn a dollar and refuse to spend a dollar, the rest of the world is one dollar richer — because you produced a dollar’s worth of goods and didn’t consume them.
This makes a certain sort of sense, I must admit. You earn money through your efforts. But when you delay spending this money, you’re essentially providing your services for free (at least until the money is spent).
Landsburg’s conclusion busts me up, but maybe that’s just because I’m a money geek and a lit geek:
Great artists are sometimes unaware of the deepest meanings in their own creations. Though Dickens might not have recognized it, the primary moral of A Christmas Carol is that there should be no limit on IRA contributions.
I’ll never look at Scrooge the same way again…
[Slate: What I love about Scrooge]
This article is about Funny Money
I agree.
What’s the point of the limit?
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That’s funny. I guess Scrooge isn’t so bad after all.
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The article presents an interesting and novel viewpoint on Dickens, but people are always free to spend and save in whatever proportion they want. You don’t need to have an IRA to save money. IRA contributions just reduce the taxes you owe.
The limit is in place because (at least with the current U.S. system of primarily taxing income) it doesn’t seem very practical to be able to collect a lot of taxes if there were no limit. People who make $10 million per year could essentially defer nearly all of their taxes indefinitely if there were no IRA limit. If you look at aggregate tax statistics of who pays what, who saves what, who spends what, etc, it is hard to imagine that tax receipts would be even half the current level if everyone could essentially deduct all their savings before calculating their taxes.
Because of the amount I save, I am someone who would benefit tremendously from big increases in the IRA limit. But as a matter of fairness and practicality, I don’t see how having no IRA limit would work without either restructuring the federal tax system to tax other things like consumption or assets, or else by drastically cutting the size of the government. Both options are essentially political questions, and as I’m an entirely apolitical person and also perceive this blog to be such, I’ll just leave it at that!
Having said all that, I totally do agree that there is a big problem with over-consumption in this country, and savings is unfortunately no longer considered a virtue of any sort. A lot of people save zero (or close to it) and that is a serious problem on many levels. However, the tax code already provides incentives for savings by deducting more than $20,000 per year per wage earner through 401(k) and IRA accounts, yet many seemingly can’t or don’t take advantage of the existing incentives, so I doubt raising the limit substantially will suddenly change a lot of behavior among people who currently are saving very little.
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I love this! Thanks JD
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Landsburg’s articles often offer a contrarian, novel, or at least interesting angle.
As a working poor person, I have long noted that minimum wage workers produce cheap goods and services the middle class takes for granted.
How much would your Big Mac cost if it was produced at living wages or union scale?
I have also noted that the poor often make life better for others by conserving scarce resources. Your gas guzzler and McMansion drive up the cost of energy, while I do not drive a car and get by with 300 sq feet of space: You (generic you) impose costs on me that I do not impose on you.
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That was some pretty interesting logic, but I disagree. Scrooge was collecting rent from people, so I don’t know how earning money from rent would make the world richer if he’s simply collecting from something that’s long been built. He seems to be a miser from residuals rather than “giving to the world.”
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I’ve thought about this for a long time: You can’t “give” unless you have surplus. Tiny Tim wouldn’t have gotten the operation except Scrooge saved.
If you consume everything you earn, then you are a “net zero”. Everybody dies, estates typically turn over in three generations, and it’s these surpluses that provide the base for so many charitable causes.
It’s irrelevant that some rich don’t share: It’s their money, and their decision. But, they’ll still die without having consumed that which they’ve built, and it’s more likely that the surplus resources will be spread to social causes (some of which may be “good”).
So, the more rich people, the better. The more saving, the better. People that consume all they take in (no matter the amount) have no standing to criticize others that generate surplus that the earner did not consume.
In reference to tax reform, it’s bad for society to punish “work” (which is what you’re doing with “income” tax). Much better would be to tax consumption — i.e., a sales tax. That’s the point of the “FairTax” (which I think is a great idea):
http://www.fairtax.org
The problem is that government can’t “fiddle” with the rules on a sales tax like it can on income tax (rewarding friends and punishing enemies). So, politically, tax reform (e.g., FairTax) is good for the people and bad for the government leaders.
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I’ve been considering buying The Total Money Makeover for a cousin graduating high school this spring. He’s totally ignorant when it comes to finances (and his parents are, too). He does show an interest in the subject, but buys into the myths regarding debt – you know, everyone has a car payment, everyone has credit cards to have nice things, etc.
Based on your article, would you recommend a different title for him?
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Saving doesn’t make the world richer, just you. It is consumption that puts that money into someone else’s pocket so that they have the opportunity to spend or save. Consumption is what makes the economy grow. I’m not advocating 100% consumption, but some is necessary.
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“Saving doesn’t make the world richer, just you.”
I think that’s a bit over-simplified. Saving puts money into the capital market, which *does* make the world richer. If you don’t believe me, have a look at countries without good capital liquidity (which is essential for business growth).
Yes, I agree that spending drives the economy, and benefits both the seller and buyer. In this conversation, though, we’re talking about spending to benefit another person (e.g., charity) as opposed to spending benefiting the earner (e.g., consumption).
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“May I live simply that others may simply live”
Gandhi
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@Jason #8 The best book I’ve ever read about youth and money is Get A Financial Life by Beth Koblinger. I’m sure you can find it at your library. Read it, and if you agree with me, buy it for him. And maybe a copy for his parents.
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Much better would be to tax consumption — i.e., a sales tax. That’s the point of the “FairTax” (which I think is a great idea):
Too bad that under the “FairTax” some forms of consumption are more equal (and thus not taxed) than others.
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@ Minimum Wage:
What are you talking about?
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What does it sound like I’m talking about? Under the “FairTax” some forms of consumption are taxed and others are not taxed.
Which means it redistributes income from the taxed class to the untaxed class.
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There’s a house for sale down the block. Under the “FairTax” if you buy it, there is no tax. I can’t buy it, and if I rent it, I would have to pay tax up the wazoo indefinitely. Is that Fair?
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Jason #8: Of the financial books I’ve read, the one I think would most have influenced me at the age of 18 is “The Richest Man in Babylon” by George S. Clason. It’s not really a recipe for becoming rich, more for becoming financially free (i.e. not a financial slave), and it is more motivational than providing an actual plan.
But it would have profoundly influenced me at that age I think.
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“…Under the “FairTax” some forms of consumption are taxed and others are not taxed.”
“Which means it redistributes income from the taxed class to the untaxed class.”
All taxes do this. We’re only discussing what we penalize. I don’t think you should penalize work (e.g., the income tax).
The FairTax (a national sales tax) taxes all new production (like the European Value Added Tax, “VAT”). It does not tax things that were already taxed (e.g., nothing at a garage sale would be taxed).
All systems have pros/cons. Both FairTax or Flat Tax are infinitely superior to the current system (that merely rewards friends and punishes enemies, and confuses everyone). Much efficiency is gained by going to a simpler system.
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It does not tax things that were already taxed (e.g., nothing at a garage sale would be taxed).
If you buy an existing home, your purchase is not taxed – the home was already raxed.
Fair enough.
If I rent an existing home – buying it is not an option for me – my rent is taxed up the wazoo indefinitely – never mind that the home was already taxed.
How is that Fair?
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If I rent an existing home – buying it is not an option for me – my rent is taxed up the wazoo indefinitely – never mind that the home was already taxed.
Some argue renting is superior to buying (because you avoid maintenance, property taxes, market risk, cash illiquidity, etc.) None of that relates to sales tax.
Both rent rates and new/used home purchase prices are market set, and I don’t understand why “renting” implies you’re paying more taxes than owning (under the FairTax). Rent rates simply allow the landlord to cover costs with marginal profit — they aren’t set because of taxes.
I must have missed something?
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My wife has often accused me of being Scrooge, so I guess I can identify with him (she’s the spender, I’m the saver).
Best Wishes,
D4L
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@ Minimum Waqe
For some reason my other response was never posted.
But, you’re wrong.
You won’t pay sales tax when you rent a home. Sales taxes are only applied to…Sales.
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Some argue renting is superior to buying (because you avoid maintenance, property taxes, market risk, cash illiquidity, etc.) None of that relates to sales tax.
Since EVERY homeowner has the option of renting, and since more than two-thirds of Americans own their homes, prevailing public opinion overwhelmingly considers owning to be superior to renting. If it were a political contest, owning would win in a landslide exceeding LBJ proportions.
As for property taxes, in most states, property taxes are higher on rental property than on owner-occupied homes of equal value. For example, in Michigan, the school operating property tax rate on rentals is FOUR TIMES the rate on owner-occupied homes.
Landlords MUST be able to recover ALL their costs – including property taxes – PLUS make an acceptable profit, or else they will sell their rentals and put their money in a different (and profitable) investment. Since I have never known of a massive sell-off of rental properties, I assume that landlords must generally be enjoying acceptable profits. Certainly a number of books have been published and sold on building wealth through owning rental property.
Note that the higher property taxes on rentals, by imposing higher operating costs on landlords than on homeowners, allow homeowners to pay higher prices than landlords for homes on the market, thereby reducing the rental supply and contributing to higher rents through supply shortfall.
FairTax supporters have a moral obligation to level the property tax playing field.
Until the recent housing bubble, median monthly housing cost was greater for renters than for homeowners, even though renters get much less (and inferior)( housing than homeowners, and renters have only about 40 percent of median homeowner income. (I haven’t seen the most recent numbers, but I assume the median cost is now higher for homeowners, since millions of new homeowners have taken on high payments.) Historically, home prices have advanced and ownership has been a safe (if unglamorous and unspectacular) investment while renters have borne greater risks.
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>i?You won’t pay sales tax when you rent a home. Sales taxes are only applied to…Sales.
You need to research the FairTax before you make such a claim.
Services as well as goods are taxed under the FairTax. (Otherwise the tax rate would have to be staggering.) Rent is considered a service under the FairTax.
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@ Minimum Wage:
My point is that it doesn’t make much of a difference.
In today’s terms, you are paying rent with after tax dollars. You need to make 20-30% more than your rent to pay for it.
In Fairtax terms, you are paying rent with pre-tax dollars. You need to spent 20-30% more on your rent to pay for it.
Whats the difference?
The difference is that you get to choose how your money is spent. Want to pay less? Rent cheaper! Want to pay nothing? Buy a used house!
But saying that the fair tax will screw up renting situations is bogus. It ends up being the same thing.
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@Kevin: Minimum Wage earners have to pay 20-30% in taxes on their income? Where?
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@ Justin:
I’m lost.
Where did I say that?
I was talking to the person on this site named “Minimum Wage”
I think you are confused.
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The user Minimum Wage is coming from the perspective of earning minimum wage, obviously. So saying he will be taxed at 20-30% anyway is wrong.
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@ Justin:
It still doesn’t matter because he will receive the prebate.
Besides–why are we talking about people who make minimum wage like they’re important? You have to be a loser to make minimum wage in America and there aren’t enough minimum wage earners to try and plan a new tax system around them.
The point is moot. This is a waste of time.
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@Kevin: Nice. Good to know you’re such a caring person.
Tell me something, do you take lessons in being so arrogant and out of touch?
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FairTax supporters often don’t take into account the tax preferences afforded rental property.
My landlord gets a “depreciation” writeoff on his taxes even though his rental property is appreciating in value. This tax writeoff allows my landlord to enjoy a positive cash flow while actually REDUCING his taxes.
Under the FairTax, the income tax goes away, and with it, the rental property tax breaks also disappear. When the tax breaks disappear, it’s unlikely that rents will fall.
So instead of my current after-tax “cost” of 20 percent, under the FairTax the after-tax cost of my rent will be more like 30 percent (29-point-something, more precisely).
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[...] -What I Like About Scrooge @ Get Rich Slowly [...]
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@ Justin:
I’m just telling the truth of the matter. It isn’t arrogant and out of touch; it’s simply the facts.
The Fair Tax does more for the poor than any tax code or welfare system ever has.
But the truth remains, there is no reason why anyone should be making minimum wage in this country.
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FairTax supporters have a moral obligation to level the property tax playing field.
I really don’t understand this shift in the discussion. The current system is inefficient and punishes people who work. The FairTax is simply a revenue-neutral way to shift Federal revenue from income taxes to a national sales tax.
This “preferential fiddling” with the real estate market is part of the current bubble (costs were not tied to risks). Renters in this recent chapter came out *way* ahead of owners, so I really don’t see any “moral obligation” to give renters anything. (Sometimes renters win, sometimes owners win.)
Each individual makes his own decision: If you prefer to rent, or own, that’s your decision. Even if you make minimum wage (about 2.7% of all hourly paid workers), you can do either — people do it every day.
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The current system punishes people who work hard and cannot buy a house. The FairTax does the same thing.
The current tax preferences enjoyed by homeowners – the tax penalties suffered by renters – won’t go away under the FairTax, and will be made even worse.
You say “Each individual makes his own decision.” If this were truly the case, I would not have a complaint.
My grip[e is precisely that I doDO NOT have a choice, since buying a home is not now, nor has ever been, an option for me. I’m unwilling to support signing up for a tax penalty for not being able to do something the tax code encourages.
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But the truth remains, there is no reason why anyone should be making minimum wage in this country.
That is doubtful. Millions of Americans earn minimum wage, it’s hard to imagine that all of them CHOOSE to earn such a low wage.
Where I work, we have three college graduates earning minimum wage. Itr’s not just for teenagers any more!
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Let’s take an objective look.
I am well into middle age, I have a dead-end minimum wage job with no advancement path, I have no career-related experience, my resume is useless (see previous), I am overweight, I have bad credit, I have nothing to wear to a job interview, I don’t have a car or a drivers license (so many jobs are simply not available to me). Can you think of any reasons an employer would pay me more than minimum wage?
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How much does a minimum wage worker earn per year?
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@ People who say it’s not a choice to make minimum wage:
It’s your choice because making minimum wage is a sum of the life choices you have made to the point you’re at.
You aren’t making the choice now–but you DID make the choice in your past multiple times with your behavior and choices.
It isn’t the employers fault that you aren’t worth more than minimum wage, it’s your fault.
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Let’s take an objective look.
I am well into middle age, I have a dead-end minimum wage job with no advancement path, I have no career-related experience, my resume is useless (see previous), I am overweight, I have bad credit, I have nothing to wear to a job interview, I don’t have a car or a drivers license (so many jobs are simply not available to me). Can you think of any reasons an employer would pay me more than minimum wage?
I applaud your honesty (it’s a favorite trait when I find it in another).
If you had bought a house in the last few years, odds are you would have been far worse off than you are now (houses weren’t worth the price for which they sold, and owners are now “stuck”). Renting can be fine, as demonstrated in the last few years (you’re coming out ahead, even though it sounds like you don’t think you are).
None of your situation can be fixed through the tax code. That’s merely how government raises money.
You’re going to need to make your own happiness. For example, I’ve long thought about working retail in an aquarium store (it would be not much better than minimum wage, minimal experience required).
If you need money (e.g., you have dependents), you may need to consider two jobs. I’ve worked two (or more) full-time jobs for years. Many people do. You can live on that and raise kids on that. It may not be fun, but it’s done all the time. There’s lots in life that brings great joy that doesn’t require much money.
If life really *is* this hopeless, then you’re merely saying it’s someone else’s job to give you what you need. That’s charity. Federal charity is welfare programs (many exist), and private charity has many forms (from soup kitchens to free job training). However, these will never make you happy, and probably won’t give you what you need (because they will never understand you well enough to give you what’s most important to you).
If you trust in the government (or ANY institution) to make all your decisions and give you what you need, you will only end up betrayed and unhappy. No one but me can determine that I’d be happy working retail in an aquarium store.
It’s possible you can be happy keeping bees with the monks on some mountain top somewhere. There, minimum wage is irrelevant. You really need to decide what is important (to you).
I hope this isn’t callous and flippant. IMHO, you can achieve anything that you decide is really important.
My caring and supportive thought: Don’t view yourself as a victim. Only you can be in charge of your life. You can’t abdicate your life’s choices to another, or you waste all your talents betray all your aspirations.
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It’s your choice because making minimum wage is a sum of the life choices you have made to the point you’re at.
You aren’t making the choice now–but you DID make the choice in your past multiple times with your behavior and choices.
It isn’t the employers fault that you aren’t worth more than minimum wage, it’s your fault.
Hmmm, I chose NOT to use drugs, NOT to do crime, I chose to stay in school, where I had excellent grades and test scores, graduating in the top 5 percent of my class. I’m not sure what “bad” decisions I have made.
And I think I’d do a better job than a lot of the people I see getting hired. In other words, I think I’m worth more than they are. I’m certainly willing to go head-to-head with them to see who is more productive. But employers do a better job of hiring the best job-seeker, rather than the person who would best do the job. And employers certainly deserve to be blemed for that.
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And I think I’d do a better job than a lot of the people I see getting hired. In other words, I think I’m worth more than they are. … But employers do a better job of hiring the best job-seeker, rather than the person who would best do the job.
It sounds like you’re not comfortable or versed in selling yourself. Yes, I’ve seen outstanding performers who could not or did not promote themselves. At some level, though, you’re going to have to show what you can do, or persistence will someday get you into a job where you can perform at your capability.
Most fundamentally:
The best way to be paid more than minimum wage is to be worth more than minimum wage.
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there is something seriosuly flawed with this article and i must admit it has a certain crazy socialist bent which assumes all the products and services on this earth are somehow finite.
while i agree witht the ‘scroogist’ philosophy this person has obiviously never heard of the multiplier effect. by saving a dollar and not spending it, you’re effectively denying (for that amount of time) your fellow society something in the order of 7-8 dollars in income.
i like how he conviniently ignores the idea that if there’s no demand there is no goods or services. got to admit didn’t bother reading past that point.
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None of your situation can be fixed through the tax code. That’s merely how government raises money.
FairTax supporters often claim that more people will be able to buy a home under the FairTax; I tell them there is NO conceivable tax or economic scenario under which I will be able to buy a home, and I certainly don’t want to get stuck paying the “renter penalty” built into the FairTax. For many lifetime renters, the excess FairTax they pay on housing will represent the difference between enjoying a modest retirement and never being able to retire at all.
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If you had bought a house in the last few years, odds are you would have been far worse off than you are now (houses weren’t worth the price for which they sold, and owners are now “stuck”). Renting can be fine, as demonstrated in the last few years (you’re coming out ahead, even though it sounds like you don’t think you are).
Actually, I live in an area with sustained net in-migration, where home prices have not collapsed. The house in which I live is now worth about 30 percent more than it sold for four years ago. (I tried to buy it at the time but of course couldn’t come up with the money, so I get to pay more in the long run.)
Rents are going up here as well as home prices: rents went up 6 percent last year, and are projected to rise 8 percent this year and an additional 6 percent next year.
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The march of technology closes some doors (buggy makers) and opens others: today I can become an angry blogger (heh) and get paid for it. It’s an amazing concept, unthinkable ten yars ago. And it has not escaped my notice that this line of work fits in perfectly with my schedule.
One of my “job” constraints is that I don’t have a car, so many jobs are simply not accessible. It’s a lot harder to keep two jobs withoput a car, since you need to travel to Job 1, travcel to Job 2, and then travel home when you’re done working. That is mighty difficult to work into a transit schedule.
But as a blogger, there is No Travel Needed (apologies to NCN) plus it’s perfect for those times when I have a couple hours but not enough time to work a job shift.
So in the end, my decision to stay in school and get great grades (love that alliteration) will be vindicated.
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The best way to be paid more than minimum wage is to be worth more than minimum wage.
That’s not how it works in the minimum wage world. The best, most productive hamburger flipper in the world probably earns only a few cents more than the worst hamburger flipper, controlling for differences in local market wages).
When I delivered pizzas, I was consistently among the most productive drivers, yet all the drivers were paid minimum wage.
My boss was constrained by cost limits dictated from the bosses above him, so he was unable to pay his best performers what they were worth. Also, he was paid a base salary plus percentage of store profit, and was so absorbed in his quest to amass enough money to buy his own franchise that he did not hesitate to cut costs, even at the cost of long-term profit decline. (He intended to have his own franchise – and be gone from that store – by the time the bottom line was hurt. But the bean counters caught on and fired him.)
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I’ve stayed out of this discussion so far, partly because Minimum Wage can hold his own, and partly because I don’t have time to spare for this right now. However, I want to argue some points against Minimum Wage.
First, you say “that’s not how it works in the minimum wage world” with regards to being worth more than minimum wage. Actually, that is how it works. As an employer, I pay my employees what they’re worth. If they’re worth more than minimum wage, I pay them that. If they’re not, I don’t. (Actually, if they’re not, I try to get rid of them.)
Before I owned a business, I worked many minimum wage jobs myself. Sometimes I never was offered a raise, but sometimes I was. You know what? The times I wasn’t offered a raise, I didn’t deserve one. And any time I worked my ass off, I got a raise. I got a raise once in a restaurant where nobody else that worked there could ever remember anyone getting a raise. (At least among waitstaff.) Why? Because I worked hard, was smart, and didn’t cause a fuss. I was a model employee, and it was worth my boss’s while to go to his boss to fight for me. (Again — this didn’t happen at all my minimum wage jobs. Sometimes I wasn’t worth minimum wage, and I know it.)
What’s more, even if you work someplace that can’t pay more than minimum wage, if you’re a valuable employee, managers have a tendency to grant unofficial perks. They’re more lenient with breaks, give better scheduling, overlook stuff that disappears. I’ve seen good employees get away with stuff that bad employees would be fired for.
Finally, let’s not forget my profile of who earns the minimum wage:
Most people don’t see a minimum wage job as an end, but as a means to an end.
You, Minimum Wage, are the exception and not the rule. It seems clear that there’s something you’re not telling us. I suspect that you know very well why you’re paid minimum wage, and that the reason is very much within your control. I’m not saying this is true for everyone, but I suspect it’s true of you.
Again, I understand that there are some people trapped in minimum wage. But most people who earn that are in transition. And of those that aren’t, I suspect most of the rest have some sort of story that would make it clear why they don’t earn more.
I’d be curious, MW, for you to tell us why you think that’s all you earn. But phrase it in terms of your decisions and your self, not in terms of others.
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I guess I can refine my observation:
I spent many years living in a college town, with a huge surplus of high-turnover educated cheap non-breadwinner labor. A lot of the students I worked with were there to earn beer money, I was there to pay the rent and keep food on the table. Since high turnover was inevitable, there seemed to be little concern for keeping the best workers. Also, these were all cortporate fast food outlets – none were mom-and-pop sole proprietors, where bean counters kept a close eye on costs and sales.
I spent one summer flipping hamburgers in Detroit, which sadly had a severe shortage of good workers. I got a 6 percent raise in my first three weeks. (This boss was also fired by the bean counters.)
There are three college graduates where I work now; we are all paid minimum wage. My current employer also has high turnover but he also seems to have little difficulty hiring a continual stream of good workers at low wages. I think I am once again in an area with a labor surplus.
I mentioned this elsewhere, but in my earlier rant I forgot to mention that I need dental work; (So many things to rant about, sometimes I lose track.) I think this is a major factor in my unemployability.
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@Minimum Wage:
I don’t recall ever being asked about needed dental work in a job interview. Why is that even an issue?
Are you to lead us to believe that your employers are making you show them your teeth before they’ll hire you?
If you need dental work — well, that’s sad news. However, it’s totally irrelevant to you getting in there and busting it to raise your income.
I think the major factor in your unemployability is your fondness for ranting.
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