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Savings, Investment, and the National Economy
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18332 |
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Section : |
MODERN THOUGHT
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10 / 1990 |
2,365 Words |
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Rep. Norman D. Shumway, Rep. Gerald D. Kleczka, and Sen. Connie Mack
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The following are comments from members of the U.S. Senate and House of Representatives regarding policies instituted to stimulate personal savings and investment.
Rep. Norman D. Shumway
The noted economist Henry Hazlett once pointed out that “economics is haunted by more fallacies than any other study known to man.” For every interest and political position, there is a complex economic philosophy waiting to be articulated. Anyone desiring proof of that need only peruse the articles in these pages!
In the United States, our economic system is also our way of life. No matter what various economists might tell us, the fact is that political and economic freedom are interdependent; one will not, cannot, succeed without the other. Accordingly, government, policies should encourage citizens to exercise their liberty and innovation in earning to the best of their abilities, planning for their own respective futures, and saving and investing to provide for their own needs. The federal government should be the “court of last resort,” not the entity we look to for answers to all problems and protection from all ills.
Paradoxically, in the words of Charles E. Walker, chairman of the American Council for Capital Formation, “We tax saving as if it were sinful.” Indeed, the present tax structure does seem determined to penalize savings and investment. We tax income when it is earned, then again when invested savings yield results. No one needs to be told that the United States has the lowest rate of savings in the industrialized world as a result. To me, though, there is a far more dangerous outcome: Discouraging individuals from savings virtually guarantees increased dependence upon government. To meet that increased demand, government must further enlarge in size, cost, and authority, and a vicious cycle is perpetuated.
When Congress established the Individual Retirement Account incentive for retirement savings in 1981, it was taking an important step to encourage Americans to provide for their own security. Not only did IRAs benefit individual Americans - they also helped the national economy. By encouraging long-term savings, IRAs helped provide for capital formation.
Not content to take yes for an answer, Congress enacted the Tax Reform act of 1986, which drastically changed the rules in the middle of the game to reduce or eliminate tax deferrals for contributions to IRAs for many Americans. Thus, the incentive to save for the future was weakened. As savings are diverted into consumption, the private sector is deprived for investment capital. That decline in savings plays a major role in raising interest rates. Higher interest rates, in turn, encourage an influx of foreign investment capital, which has resulted in an overvalued dollar, expansion of the trade deficit, and the largest foreign debt burden in the world.
I believe we should restore the pre-1986 deduction for contributions to IRAs, and I have introduced a bill to achieve that goal. I also endorse IRA-like treatment for savings earmarked to provide for higher education and long-term health care in one's retirement years. Those who warn that a loss of tax revenue may occur in the short run conveniently overlook the fact that increased
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