It’s Who Produces, Not Who Spends, That Matters
Posted by Heather Edwards on November 1, 2010
Economists Alex Brill and Chad Hill illustrate in a recent Forbes article that looming tax increases, if allowed to go into effect January 1st, will essentially “bite the hand that feeds long-run economic growth” by disparaging savings, investment and the taxpayers that account for the majority of that investment.
The current administration is promoting the troubling implication that the rich will not miss what they are taxed on because they are less likely to spend that money; therefore giving them a tax break would do very little to boost the economy. Brill and Hill correctly argue that this logic presupposes that ever-increasing spending of borrowed funds is the answer to the country’s economic woes, and simultaneously neglects the importance of saving by encouraging families to spend, spend, spend because the social safety net will rescue them.
Because “future living standards depend in large part on the willingness of the current generation to save for the future,” when Washington de-emphasizes the importance of saving by taxing returns to savings – or promotes policy that disadvantages investment, hiring workers and growing business – long-term growth will not follow. Our collective savings are the funds used to allow business to access the capital needed to grow. Slapping higher taxes on the top percentage of earners will deter savings and further slow growth, as much of the savings available for economic growth comes from that top sector of earners (IRS data for 2007 reveals that households that earn above $200,000 receive 47% of taxable interest income, 60% of dividends and 84% of net capital gains).
Ultimately, increased taxing of top earners is not good policy, economically or otherwise.
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