It might not pay to save

That’s the conclusion of a new study by by Laurence J. Kotlikoff and David S. Rapson. Problem is that as you gain more savings you become ineligible for more means-tested assistance programs. Acknowledging that the complexities of the tax code and the programs makes it impossible to perform a complete analysis, they estimate that “A 30-year-old single parent earning $15,000 a year faces an effective marginal tax on saving of 260 percent; for each additional dollar saved, the parent loses $2.60 in additional taxes and foregone government benefits.”

Although the study does not go further than to describe the problem, the next question is what to do. Although one may fiddle with the details, this problem can’t be solved as long as means-tested taxes or subsidies are an important factor in the economy affecting the poor.  But clearly a Georgist reform could alleviate it by increasing wages in general, and perhaps solve it completely if resource rents were distributed equally to everyone thru a citizen’s dividend.

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  1. Pingback: Assessor Houlihan raises marginal income tax rates « Taxpayer

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