Monday, September 20, 2010

The Economists' take on our future debt

Here's a good article discussing the consequences of Americans shifting into more saving and reducing household debt. I've mentioned before, the result will be slower economic growth over the next decade, but this will put us in a better financial position to address social security and health care. We need to create more incentives for households to save, one example could be a switch from an income tax to a spending tax (or a value added tax). Right now we are taxing any income that is not spent buying a home, paying for college, given to charity, or saved in retirement plan. We are not encouraging households to save money. We need to allow households to save money in relatively liquid accounts without paying income taxes. This saving will further reduce our dependency on foreign investment.

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