The important question for Pechman was the "incidence" of tax: Who bears the burden? Corporate taxes, Pechman found, got passed on to customers in price increases or to employees in wage reductions. The deductibility of interest spurred corporations to take on debt, which lowered their tax burden--but led in part to takeover mania in the 1980s. Tax consequences are often unintended.
Today corporate and individual finances are more intertwined than ever, in health insurance and pension accounts. For most publicly held U.S. companies, more than 60% of the stock is owned by pension funds. And that fact also pushes tax reforms that would increase pensions and savings.
Ironically, current tax debates are over credits for child care and capital gains tax cuts--items of complexity. Flat taxes could do away with both--eliminating income taxes for families with incomes below $36,000 and using only a single tax rate.
So what lies ahead? Passage of some form of savings-promoting legislation next year. Because the real dynamic of tax policy today comes from a bipartisan desire to save for retirement and to preserve the promise of the U.S. economy.
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A New Era?
A majority of Americans say they want to save more. . .
Survey responses to the statement "I am prepared to reduce personal spending now in order to save for retirement":
Somewhat agree: 44%
Somewhat disagree: 33%
Strongly disagree: 7%
No answer: 6%
Strongly agree: 11%
Note: May not add up to 100% due to rounding
. . .and the 'official' personal savings rate is rising again. . .
Personal savings as a percentage of disposable personal income:
* Average rate for first four months of 1995
. . .but even as retirement account assets grow. . .
Assets in 401(k) retirement plan (billions of dollars):
. . .so does consumers' debt burden.
Consumer debt as a percentage of disposable personal income:
Sources: Kemper-Roper Retirement Monitor survey, Commerce Department, Access Research Inc., Federal Reserve Board