Once again the national personal savings rate has dropped below 4% of gross domestic product, prompting cries of surprise and alarm.
This savings rate, politicians and others note, is half of what it was in the mid-'70s and clearly not sufficient to ensure the future growth of the economy.
One person who is not surprised by the most recent drop in personal savings is Peter L. Bernstein, president of Peter L. Bernstein Inc., a New York-based economic consulting firm. He wrote in his newsletter in March 1993 that President Clinton's plans to raise taxes were more likely to reduce saving than increase it.
This is exactly what has happened.
Mr. Bernstein noted that the common assumption that saving is "a fully controllable family decision" is incorrect in a world in which unexpected changes in incomes, consumer prices and views of the future are the norm rather than the exception. Saving, wrote Mr. Bernstein, "is a dependent variable, a volatile residual that does not lend itself to easy control."
One reason for the decline in the national savings rate may be the ever-increasing tax burden, which has reduced after-tax income.
According to David Wray, president, Profit Sharing Council of America, Chicago, the median family paid only 2% of income to government in 1948. Now the median family pays 24% to the federal government alone. That must have reduced the ability of the median family to save. The wonder is the savings rate hasn't fallen further. In fact, high-income earners continued to save during the 1980s, but savings were being withdrawn at lower income levels, and in the government, where it was running big deficits.
Mr. Bernstein wrote that the overwhelming bulk of personal saving takes place "at the top of the income pyramid." These are the people who were hit by President Clinton's large tax increase. In fact, the Clinton administration boasts of the fact that only the top 5% of income earners saw their income taxes increased in the 1993 tax changes.
These taxpayers may have reduced their consumption somewhat, but they also apparently reduced their saving rate to offset the tax increases.
Certainly the federal deficit has been reduced - the figures show it at $203 billion for fiscal 1994. That is, federal dissaving has been reduced, but is that enough to offset the decline in personal savings?
In an interview last week, Mr. Bernstein noted the closing of the deficit has not brought all of the benefits it was supposed to bring. It was supposed to reduce interest rates, reduce the trade gap and strengthen the dollar. None of these things is in evidence.
And the decline in the federal deficit is expected to end in 1996, while the impact of the tax increase is likely to be longer lasting - as long as the tax increases remain in place.
The country needs increased saving and investment to produce the long-term economic growth that will make it possible to support the baby boom generation in retirement. Raising taxes on the high-income earners and on business is not the way to get it.