The Decline of U.S. Saving and Investment
Another opportunity to growl about economic indicators. For prior Growlings on the topic, see Growls search results.
The Tax Foundation's Alan Cole, an economist, posted a 'must read' Fiscal Fact (No. 439, October 2014) today, writing that because of the decline of U.S. saving and investment, the nation is "losing the future." Here is how Cole introduces the paper:
"A society provides for its future by accumulating both physical and financial assets with lasting value. The United States, one of the wealthiest countries in the world, has long been a forward-thinking country that builds for tomorrow through saving and investment.
"However, over the last fifty years, U.S. saving and investment have eroded substantially, and during the most recent financial crisis, they collapsed almost completely. At the national level, the U.S. is essentially treading water. Citizens are barely running enough household surplus to make up for government deficits, and businesses are barely investing enough new capital to make up for the depreciation of old capital.
"Saving gives us security, while investment gives us rising incomes through enhanced productivity. America could do well with a great deal more of both.
"Currently, the U.S. tax code places substantial burdens on saving and investment. As the world has globalized, other nations have made themselves more attractive destinations for investment by changing their tax codes. The United States would be wise to follow suit."
Here are the 'key findings' from the study:
- "Saving and investment are necessary for a society to adequately provide for its future.
- "Saving and investment have declined substantially as a percentage of GDP over the last 40 years, and have collapsed almost entirely since the financial crisis.
- "American private saving barely keeps pace with total government deficits. On the whole, the country saves very little.
- "American investment barely keeps pace with depreciation; U.S. private and public capital stock and infrastructure deteriorates almost as quickly as it can be repaired or replaced with new investment.
- "The U.S., overall, does not save enough money to fund all of the worthwhile domestic investments and relies substantially on foreign investors to make up the difference.
- "Tax reform could help the U.S. become a forward-looking economy that invests and saves at more prudent rates."
The entire 8-page study is worth reading in its entirety.
Below is a chart from the study showing the private sector saves while government borrows:
Cole includes two more charts which taxpayers should send to their favorite member of Congress. One shows the decline of both saving and investment. The other shows that foreigners own more American assets than Americans own foreign assets. In the first chart, however, note that although the decline started before the administration of President Reagan, both saving and investment had significant bumps upward during his administration. Remember the tax cuts during his administration?
Readers of Growls who are concerned that America is losing its future because of the decline of savings and investment are urged to contact their members of Congress. Information is available at Thomas (use left-hand column). Readers living in Virginia's Arlington County, should contact:
- Senator Mark Warner (D) - write to him or call (202) 224-2023
- Senator Tim Kaine (D) -- write to him or call (202) 224-4024
- Representative Jim Moran (D) -- write to him or call (202) 225-4376
And, tell them ACTA sent you. More importantly, kudos to Alan Cole and the Tax Foundation! Be sure you have it bookmarked.