LESTER THUROW
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American savings rate is 5 percent, the German rate is 14 percent, and
the Japanese rate is 20 percent.
RODOLFO CARDONA: Isn't that because in Japan and Germany credit is
much harder to get?
LESTER THUROW: That's one reason.
In
both Europe and Japan
consumer credit is much harder to get.
In
Japan you have to pay cash
for a car. That has two consequences: the money you would have
borrowed if you could have can be used for factories; and your
savings can be used for plant equipment until you get enough to buy
your car.
One way Europeans get the savings rate up is through a value
added tax (VAT). This is a tax on consumption, which means you
don 't pay if you don't consume. A large tax on consumption is a
powerful incentive not to consume.
If
President Reagan were seri–
ously interested in supply-side economics, he might take taxes off
investment and work effort and load them onto consumption. A 10
percent VAT would rather quickly eliminate the corporate income
tax, and completely eliminate the social security tax. The first is a tax
that is basically on investment, the second is a tax on work effort.
Corporate income tax cuts would go to high income groups, the
social security tax cut would go to low income groups. But in this
country most groups that pay taxes would insist on spending their
tax break, as opposed to saving it.
By contrast, the Japanese have strong incentives to save. For
instance, they do not have private pensions. On a Japanese worker's
day of retirement, he is given eight years' worth of income. Most
private pension funds in the United States are not funded. And so we
don 't even save for our old age when we contribute to our pension
fund, because that money is just given to a current retiree, and the
assumption is that somebody who is working in the company when
we retire will give the money to us. Under the Japanese system, the
company has to fully fund the pension system. And the worker has to
save it if he wants something for his old age.
The Japanese also take one third of a worker's income and give
it to him every six months as a bonus.
If
you have a low monthly
wage and a big bonus that comes every six months , yOll'll save that
bonus . There's also no question that when you do not have a social
pension, you are encouraged to save for your old age.
DANIEL BELL: Would you want a VAT that is progressive against
proportional incomes?
LESTER THUROW: You can make a VAT as progressive as you like, with
