Rebecca Wilder (202) 224-0379Washington, DC—Senator Robert F. Bennett, Chairman of the Joint Economic Committee, held a hearing today to find ways that federal policy can encourage Americans to save. Bennett invited witness widely recognized as experts on saving; Richard Thaler, University of Chicago professor of economics; Robert Pozen, Non-Executive Chairman of MFS Investment Management, and professor at Harvard Law; Ric Edelman, founder of Edelman Financial Services in Fairfax, and host of financial programs on radio and television; and Peter R. Orszag,
Senior Fellow at The Brookings Institution.
“The U.S. tax system is excessively complex to the point where it discourages personal saving,” said Bennett. “The income tax system and the treatment of dividends, capital gains, and interest income lets the government tax the returns from saving two or even three times before it reaches
a worker’s pocket. The tax advantages we do provide, such as for IRAs, are complicated, and unreasonably restrictive.”
Two years ago, American households saved only 1.5% of their income, an all-time low. Just over a decade ago, households saved eight percent of their income, and in the 1970s and early 1980s the saving rate was regularly over ten percent. Personal saving is low not only by historical standards but by international standards; nearly every other westernized economy saves more than the U.S., as do many developing countries.
“As Americans live longer and entitlement programs balloon, it is not realistic to expect the federal government to pick up the entire tab,” said Bennett. “What’s more, saving finances the investment necessary to spur further economic growth. The American economy is driven by
ingenuity and entrepreneurship, but even the most ambitious genius with a business plan can do little without ready access to capital.”
The panel concluded that policymakers should adopt simple, common-sense changes to the current tax code making it easier and more attractive for individuals to save. It was also agreed that financial education should become a core component in schools and in the workplace in order to improve the financial well-being of all Americans.