Increasing Investment With Tax-Free Savings Accounts
C reating Capital: They did it in Britain and in Canada too. So why don't we do it here? Why hasn't the U.S. set up tax-free savings accounts? As one supporter put it: "They are pro-growth, pro-family and pro-freedom."
The personal savings rate in the U.S. fell to 5.3% in March, well off its historical high of 17% in May 1975. While that's better than the all-time low of 1.9% set in July 2005, it is also well beneath the 1959-2015 average of 8.4%.
America's personal savings rate is not a sexy topic sure to get the masses worked up. But it is nevertheless important. Savings help drive investment, which "will increase our capital stock and lead to stronger economic growth," writes Karen Dynan, vice president and co-director of economic studies at the Brookings Institute.
While popular thinking says that consumer spending fuels economic growth, investment is the real engine that moves our economy ahead.
"Consumer spending is not the mainstay" of our economy, economist Mark Skousen wrote in The Freeman. " Investment is . Business spending on capital goods, new technology, entrepreneurship and productivity is more significant than consumer spending in sustaining the economy and a higher standard of living."
"The historical record on economic growth conflicts with this consumption doctrine," says John Papola, a producer of economics-themed videos, in Forbes. " Increased investment drives economic growth ."
So, if investment stimulates growth, and savings boost investment, how do we increase savings?
Chris Edwards of the Cato Institute offers one option: universal savings accounts .
In the U.S. version of these accounts, as proposed by Edwards and IBD contributor Ernest Christian, deposits of after-tax income would earn tax-free returns while withdrawals, which "could be made at any time for any reason," would be tax-free, as well.
However, no such accounts exist in the U.S., though in Britain and Canada they "have been a roaring success," says Edwards, so much so that they have been recently expanded in both nations.
Read More At Investor's Business Daily: http://news.investors.com/ibd-editorials/051215-752255-begin-tax-reform-with-tax-free-savings-accounts.htm#ixzz3a042yZNG
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