The problem in a nutshell is this: Only about 20% of U.S. households are serious contributors to the investment capital of our country. This 20% provides the bulk of our savings.
But it is this same 20% that has been singled out for the bulk of the tax increases encoded in the American Taxpayer Relief Act of 2012.
So the legislation likely will reduce our already-anemic national savings rate, which lags far behind most of the countries with which we compete.
A recent Boston Consulting Group consumer survey, for example, found that in China more than half of all high-income individuals save in excess of 20% of their earnings. The average savings rate among China's highest earners, we found, is more than 17%.
Among China's booming middle class, some 47% of individuals are saving a minimum of 20% of their earnings.
The average among this group is nearly 16%. Even among China's poor, some 31% of low-income individuals told us that they save at least a fifth of what they earn. The average among this group is nearly 11%.
By way of contrast, just 17% of high-income Americans — those earning in excess of $120,000 — are saving 20% or more of their earnings. The average among high-income Americans is just over 11%.
Among middle-income Americans, the average is 6.5%. And among low-income Americans, it's just 3.4%. About 40% of households saved nothing in 2012.
The 2% increase in the payroll tax will force an across-the-board drop in spending for these 45 million households.
National savings rates are important because they provide the core long-term investment capital of a country.
To increase productivity, capital needs to be invested. It is savings that permits growth in investment and higher long-term earnings. Starve savings and say goodbye to a better future.
Read More At IBD: http://news.investors.com/ibd-editorials-perspective/020613-643425-recent-tax-deal-will-only-slow-the-economy.htm#ixzz2KBlU5ApA
Follow us: @IBDinvestors on Twitter | InvestorsBusinessDaily on Facebook