NCPA - National Center for Policy Analysis

Barriers To Savings

January 13, 1997

Too few Americans have socked away enough money for retirement, according to many economists. Policy makers, they say, should enact measures to encourage savings and remove disincentives to thrift.

  • The personal savings rate has fallen to about 5 percent of Americans' income in the 1990s -- down from 7.4 percent in the 1960s,
  • However, when payments for Social Security, disability insurance, unemployment insurance, health care, workers' compensation, welfare and a host of other social insurance programs are added in, the savings rate jumps to 11.3 percent -- up from 9.2 percent in 1960.
  • But not only are many of these government programs on shaky financial footing, the forced savings have eroded people's desire and ability to save on their own, according to experts.

There are even more disincentives to saving generated by government policy.

  • The present tax system actually punishes people who save.
  • Savings in ordinary bank accounts are taxed twice and stock market investments are taxed three times.
  • Those who are frugal and retire with what government considers too many assets see their Social Security benefits reduced and then taxed -- raising marginal tax rates for some of the elderly to as much as 85 percent and more.

So-called social insurance taxes take up 7.65 percent of individuals' paychecks, up to about $66,000. And money paid by employers -- another 7.65 percent -- comes directly out of workers' paychecks, in the form of lower wages.

This suggests to some observers that reforming Social Security by letting workers invest part of their social insurance taxes on their own would help raise savings.

Source: Perspective, "Taking Savings Private," Investor's Business Daily, January 13, 1997.


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