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Your Take: Boost Savings Rate by Cutting Taxes

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Actions speak louder than words right? So why is the interest you earn from a savings account taxed at your marginal income tax rate while the dividend income you earn from investments is taxed at the long term capital gains rate? When we put our money in a high interest savings account, the interest we earn is taxed at 25%. When we get a dividend payment, it’s taxed at 15%.

So, if you want people to save more, why not do something simple like tax interest at the long term rate? Or, not tax the first $x,xxx.xx in interest earned each year? It won’t be a perfect answer to our aversion to saving, as interest rates will adjust to the change in tax treatment, but it will certainly change the mindset of your average citizen. Politicians love to talk about how we should be saving more but they don’t actually take any steps to make it a reality (unless you count ignoring the signs of an insanely “frothy” housing market, over-leveraged financial institutions, etc.).

Sadly, given the recession, this will never happen because while we all inherently know that saving for the future is more sustainable than spending it all today, there’s no way a politician can advocate this while we’re in a recession.

Despite that, I’m curious what you think? Crazy idea?

(Photo: gnerk)

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48 Responses to “Your Take: Boost Savings Rate by Cutting Taxes”

  1. lsward says:

    Makes no sense to save. You get a half percentage point from your savings account and they take 25% of that for taxes. What does that really make your savings account interest rate? Now add in inflation and you are better off buying stuff now that will cost you more in the future than you are earning off the money now. It is a lose lose situation.

    We personally still save because we don’t want debt and would rather pay for what we need with cash, but the truth is, no one wants Americans to save or they would make it easier and more beneficial.

    If you know the rule of 9, they can only grow the economy if we are in debt.

  2. If we all save, the economy would IMPLODE.

    The government needs everybody to spend like banshees.

  3. Mike says:

    I think we should allow more Asians in to the US. They have one of the highest savings rates in the world. We could use more of them in our country to balance out all the idiot tax and spenders.


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