Savings are the seed corn of the economy. When individuals and businesses save money instead of spending all of it, those savings are available for the investments and loans that keep the economy healthy. A flat-rate income tax would boost savings and lead to a stronger economy and a higher standard of living.
Todays complicated income tax discourages savings. The savings rate is below five percentabout one-third as much of our income as our grandparents saved. Worse, our current system can tax some forms of savings three times.
One flat tax proposal would tax most income just once at a 17-percent rate, which would permit the average Michigan family to save up to 1,400 more dollars per year. This would help savings grow by more than seven percent.
The cumulative increase in savings would lower interest rates by as much as 25 percent, which would benefit families with mortgages, car loans, and credit card payments.
Lower interest rates would also encourage job providers to invest in new plants, upgrade equipment, and hire more workers.
The flat tax idea is gaining popularity. Its effect on increased savings alone is a powerful argument in its favor.
For the Mackinac Center, this is Catherine Martin.