Taxation of Savings

THE opinion that, under a proportional income tax, savings are taxed at nearly twice the rate at which expenditure is taxed, was first expressed by Stuart Mill, who did not refer it to anyone before him. His statement in the Principles virtually includes the formula which is later expressed by Professor Pigou. Mill says: Unless savings are exempted, the contributors are twice taxed on what they save, and only once on what they spend. . . In addition to the 3 per cent. which he has paid on the principal, (the taxpayer) pays 3 per cent. annually on the interest, which is equivalent to an immediate payment of a second 3 per cent. on the principal, . . . or, more correctly, 3 per cent. on the whole, and another 3 per cent. on the remaining 97. This gives the formula that, if R per cent. is the rate of taxation on the whole income, expenditure pays R per cent. once for all, while savings pay R per cent. immediately, and

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• The Double Taxation of Savings

  Amedeo Fossati•History of Political Economy•2013

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