June 26, 2009

May incomes surge - but savings outpace spending.

May incomes surge, but savings outpace spending - Yahoo! News: "May incomes surge, but savings outpace spending"

Now this is good news for consumers! If the savings rate is increasing it means Americans are becoming a bit more frugal and wise about spending money on unnecessary purchases, and will finally build up that emergency fund (which I think is the maximum you need to save in a savings account - invest the rest!).

But why is the savings rate increase bad for the governement? Well think of it this way - the government needs consumers to spend because it receives taxes on anything we buy or sale. In other words, the government receives income from consumer spending the same way you receive a paycheck from your job.

If some consumers don't buy anything, then businesses won't be able to sell anything, and the government doesn't receive as much revenue from taxes on consumer spending - which as indicated in this article is up to 70%.

Have you ever wondered why the government taxes your savings - yet you receive a tax break or write-off on the debt you incur?