Principles of Economics- Mankiw (5th) 780

Principles of Economics- Mankiw (5th) 780 - 806 PA R T T H...

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806 PART THIRTEEN FINAL THOUGHTS and spent on consumption goods. In essence, a consumption tax puts all sav- ing automatically into a tax-advantaged savings account, much like an IRA. A switch from income to consumption taxation would greatly increase the incentive to save. CON: THE TAX LAWS SHOULD NOT BE REFORMED TO ENCOURAGE SAVING Increasing saving may be desirable, but it is not the only goal of tax policy. Policy- makers also must be sure to distribute the tax burden fairly. The problem with pro- posals to increase the incentive to save is that they increase the tax burden on those who can least afford it. It is an undeniable fact that high-income households save a greater fraction of their income than low-income households. As a result, any tax change that favors people who save will also tend to favor people with high income. Policies such as tax-advantaged retirement accounts may seem appealing, but they lead to a less egalitarian society. By reducing the tax burden on the wealthy who can take
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This note was uploaded on 08/01/2010 for the course ECON 120 taught by Professor Abijian during the Spring '10 term at Mesa CC.

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