Tax Policy Advice That We Should Ignore
Hale “Bonddad” Stewart argues that we Democrats should become free lunch supply-siders if we wish to see more national savings:
So savings – most notably for retirement – should receive a tax advantaged rate to encourage savings. Retirement plans already grow at a tax deferred rate, meaning they are already sheltered from taxes. However, the current capital gains structure put in place does not provide a strong enough incentive to induce additional savings as evidenced by the low national savings rate. Therefore, some additional policy initiatives appear to be needed. First, a return for a preferential capital gains rate for longer-term investments is in order. This jibes with the section above that discussed trading gains.
Isn’t this sort of like George W. Bush’s “give people their money back so they can consume more” nonsense. I have never heard of Bonddad Stewart but apparently Max Sawicky knows him:
You increase the rate of return to saving, you get more saving, right? Because all good economists know that prices and incentives are rilly important, right? Wrong! Savings is also about the budget deficit and trade policy. Capital tax cuts and increased deficits means lower national savings
Exactly right! So let’s say this slowly so Bonddad can follow. An inward shift of the national savings schedule tends to raise the cost of capital, which in turn tends to lower investment. It’s bad enough when rightwingers get this issue all wrong – but now we hearing this nonsense from the left as well? Incentive effects do exist but Bonddad – like his fellow rightwing free lunchers – are not proposing a fiscally neutral means for encouraging more private capital formation. Or maybe he wants to cut public investment to pay for my private investment? Banging my head against the wall!