How our tax system punishes saving and rewards consumption

Economists and financial writers regularly bemoan our low savings rate in the US. But one big reason why our savings are so minimal is our tax system, which encourages spending and discourages savings and investment by the double taxation of income. This chart from Dan Mitchell illustrates the problem:

(Click the image for a larger version)

In short, if you spend your after-tax earnings, no problem. You’re only taxed the one time. But, if you invest that income in productive activities that help expand the economy and provide for your future security, the government takes more and more and more, even after you’re dead.

In other words, the tax system is biased toward giving government money and away from real prosperity.

Have a look at Mitchell’s post for a fuller explanation.

(Crossposted at Sister Toldjah)

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