NCPA - National Center for Policy Analysis

The Collapse Of Personal Savings

November 16, 1998

During the last six years, private saving has collapsed. Saving, of course, is essential for long run economic growth. Unless we as a people consume less than we earn there is no surplus available to finance investment. Of course, most saving is done by corporations, and governments can also add to saving by running surpluses. Nevertheless, personal saving is also important, both for the economy and for individual well-being.

  • In 1992, individuals saved 5.7 percent of their disposable income.
  • This figure has fallen every year Bill Clinton has been president, to a current level of just 0.6 percent so far in 1998.
  • Indeed, in September the personal saving rate was actually negative; individuals spent $12 billion more than they made by drawing down savings and going into debt.

The cause of the abysmal saving rate is not hard to find. Since Clinton took office, taxes on individuals have skyrocketed, depriving them of disposable income that would otherwise be available for saving.

  • In 1992, individuals paid 12.4 percent of their income in taxes other than those for Social Security.
  • This figure has risen every year since to a current level of 15.4 percent so far in 1998.
  • In September, the latest month available, the figure was 15.6 percent.

Thus taxes have risen by three percentage points of personal income. With personal income at just over $7 trillion, individuals are now paying more than $200 billion more in taxes than if the tax rate remained at its pre-Clinton level.

There is now $350 billion less capital available to finance investment in new industrial plant and equipment. Eventually, this will translate into fewer jobs, lower productivity and less income for all Americans.

Budget deficits subtract from national saving while surpluses add to it. But when deficits are reduced primarily by raising taxes, as Clinton has done, the economic payoff may not emerge because saving falls by more than the deficit.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, November 16, 1998.

 

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