An economy is like a pressure cooker. Allow too much pressure to escape and it becomes less effective. Excess saving is currently allowing pressure to escape from the U.S. economy at an unhealthy rate. A “Parity of Saving” strategy will help to limit the extraction of economy crushing resources. A summary of this strategy follows.
To start, income levels with high rates of saving are identified. This is done by dividing household income levels into deciles by number of households. With approximately 120 million households in the U.S. each decile is made up of approximately 12 million households. For each decile the average rate of saving is then determined based upon previous year's financial data. The average rate of saving for median income earners is then compared to rates of saving for higher income earners. Where the saving rate for these groups differ, adjustments to the tax rate is necessary.
For example, if it is found the average saving rate of decile six is at 10% of income and the saving rate of decile ten is 25%, the strategy is to lower the tax rate for the lower income groups and raise the tax rate for the higher income groups. Lowering tax rates on lower income groups puts more discretionary income into the hands of those with a high propensity to spend, thus spurring the economy. More discretionary income also will result in a slightly higher rate of saving for these groups. At the same time, by raising tax rates on higher income groups, less saving will result for these groups. The intent is to move those deciles above median income levels, deciles six through ten, toward an equality of saving over time. When a parity of saving has been achieved, excessive saving will have been squeezed out of the economy resulting in more money in circulation, more demand for products and services, and eventually more growth.
