Apr 13, 2007

Why U.S. tax policy makes saving a sucker's game. - By Henry Blodget - Slate Magazine

U.S. tax policy makes saving a sucker's game
For the first time since the Great Depression, the U.S. personal savings rate has "gone negative." In 2005 and 2006, U.S. citizens spent more than they made. Economists disagree about just how ominous this is, but they generally agree on why it's happening. Americans are "overspending."

Why are we doing this? Partly because we're acquisitive consumers obsessed with instant gratification and toys. Partly because soaring real-estate and stock markets make us feel rich. But also partly because we're not suckers. Perverse tax laws for investments discourage saving, so it's no surprise we spend.

If I said to you, "You can have $10,000 to spend now—or $9,500 to spend in 10 years," which would you choose? Probably the $10,000 now. And in doing so, you would be making the same choice many Americans make when deciding whether to save or spend their hard-earned cash.

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