Wednesday, July 26, 2006

Tax Cuts & 401k

Greg Mankiw put up the article that he and Robert Carroll wrote for the Wall Street Journal about the United States Treasury release on their study of permanent tax cuts.

The big points show that not constraining on spending while giving tax cuts is not. In their own words, “Tax relief is good for growth, but only if the tax reductions are financed by spending restraint.” Arnold Kling made sure to mention that, “Lower taxes on dividends and capital gains promote growth, even if they require higher income taxes.”

Personally, I probably lean a little more left than my libertarian friends, and as usual they are correct. However, let me ask some questions. If lower taxes on capital gains and dividends promote growth, then am I correct in assuming that this means we need to invest more? If so, then how are most people (middle class and beneath) going to arrange their earnings accordingly? Is it plausible for them to do so while at the same time getting a significant return? Do social security and government wage taxes take away a significant amount of money for these people to invest?

I would also like to know (most likely through a polling) if the majority of Americans want to keep social security because they see it as a guarantee of their money saved later. Even though investing through a 401k yields a higher return, the stories that are out there of people losing their savings are quite disheartening.

In the end, it’s about my inquisition on the gap between the richer citizens and the poorer citizens, and the relevance of arguments which state that the gap is widening.
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