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It Doesn't Pay to Save, but Business Debt Does

November 18, 1990

In his column, "In the Tough Years to Come, We'll Spell Relief S-a-v-i-n-g-s" (Oct. 28), James Flanigan mentioned the 9% interest rate for government and corporate bonds. Consider: After a year, individual investors ostensibly have $1.09 for every dollar saved. After deducting the 9.3% state tax and 33% federal tax and 5% inflation, you are left with a net return of under a half a percent. Capitalist greed certainly is not what drives the desire to save. Fear of old age impoverishment may.

On the other hand, consider corporate borrowers who pay 11% interest. If the company is making money, tax deductions pay them back roughly half the interest cost, leaving them an interest expense of about 5.5%. By paying back their loan in inflated dollars, their net cost is about 0.5%.

When I hear stories about the need to reduce interest costs, I get the urge to take out a violin and play sad tunes.

WILLIAM BUCHMAN

Los Angeles

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