The Epic American Credit and Bond Bubble Laboratory Message Board

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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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From: Tommaso	12/27/2004 12:20:31 PM
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In all the discussions in which the low (or nonexistent) savings rate in the United States is deplored, I seldom read the suggestion that interest on savings accounts and CDs be made tax free. With an ordinary savings account paying something like 2%, and taxes (state and federal) reducing it to maybe 1.6%, it hardly makes sense to save. At the same time, it has been possible to shift much consumer spending into loans on home equity, which are usually deductible from taxes. Or are usually deducted, anyway. But there is no need to rehearse again the consequences. In the early 1980s, I deliberately lived on credit, because even at 15% interest rates I came out ahead, since consumer interest was then deductible from taxes and inflation was running at 10%. As soon as consumer interest became nondeductible, I gave up that practice. States and municipalities have an interest in serving the tax-free income investors, who mostly are among the wealthy, and would not welcome the competition from ordinary savings accounts. But if savings accounts were tax-exempt, saving might become as attractive as borrowing, at least for some people.

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