Mixed Message on Savings

On February 22, the Obama administration's Federal Deposit Insurance Corporation issued a press release marking "America Saves Week," urging Americans to save more money. Said the FDIC chairman, Sheila Bair, "One fundamental lesson of the financial crisis is that savings can help families withstand sudden changes in their economic well being." She went on, "I am pleased to see that people are saving more of their hard-earned money and building wealth. Having personal savings for an emergency fund or saving for a future expenditure, such as a college education, can make a big difference in avoiding other costly alternatives. ...It's my hope that Americans' increase in savings is the beginning of a long-term trend." On the same day, the White House announced President Obama's detailed health care plan, which would impose a new 2.9% tax on interest and dividends earned by households with incomes exceeding $200,000 for singles and $250,000 for married couples filing jointly. As Harvard economist and former Bush aide Greg Mankiw notes, those taxes would have the effect of "reducing the incentive for saving and investment." It's quite a feat to send out a press release urging Americans to save more money and on the same day propose to raise taxes on their savings.