Debates in Macroeconomics

Economics
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There is a general consensus that the current tax laws in the USA are not effective (efficient). However, there is a debate on how the tax laws should be reformed. Should the tax laws be reformed to encourage saving? Is the tax law the major impediment to increasing private saving in the economy?

Aug 14th, 2015

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Aug 14th, 2015

A nation’s saving rate is a vital determinant of its long-run economic success. When the saving rate is higher, more resources are presented for investment in new plant and equipment. A larger stock of plant and equipment, in turn, raises labor output, wages, and incomes. If a nation’s laws make saving attractive, people will save a higher portion of their incomes, and this higher saving will guide to a more wealthy future. Unluckily, the U.S. tax system disheartens saving by taxing the return to saving relatively heavily.

The tax code further dishearten saving by taxing some types of capital income twice. This double taxation considerably decreases the return to the stockholder, thus dropping the motivation to save. Besides the tax code, several other policies and institutions in our society decrease the motivation for households to save. Some government benefits, for example welfare and Medicaid, are means-tested; that is, the advantages are decreased for those who in the past have been cautious an adequate amount to save some of their income. Colleges and universities grant financial help as a meaning of the wealth of the students and their parents. Such a policy is like a tax on wealth and, by itself, disheartens students and parents from saving.

Reference

Mankiw , N,G, taylor, M.P (2006) . Economics. Retrieved from

https://books.google.com.pk/books?id=C0me_egxxDcC&pg=PA805&lpg=PA805&dq=Should+the+tax+laws+be+reformed+to+encourage+saving?&source=bl&ots=QlZ9fC592D&sig=nB0KXPHGQNqeP9HEdO3WHmesIvo&hl=en&sa=X&ved=0CEUQ6AEwB2oVChMIuOT3i56pxwIVwmsUCh3vgA0K#v=onepage&q=Should%20the%20tax%20laws%20be%20reformed%20to%20encourage%20saving%3F&f=false


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