Savings & Retirement
The securities industry provides the products, services, and investment advice that help Americans meet their financial needs. Underpinning the investment swell are baby boomers who are scrambling to accumulate financial assets as they near retirement; generation Xers (born between 1965 and 1976) who are beginning to invest much earlier than their baby boom predecessors; women—a majority of the population—who are gaining economic power; and, growing numbers of minorities who are rapidly accumulating wealth.
The profound growth in stock market investment, however, has not translated into increased savings. This is because capital gains—in this case, appreciating stock portfolios—are not counted as personal income that is saved even though wealth is generated. Moreover, household spending, but not income, increases when households reap large capital gains. As a result, the U.S. savings rate has plummeted steadily since Americans saved 10.6 percent of their disposable incomes in 1984.
The present tax system discourages stock investments as a means of saving because, with few exceptions, taxes are imposed twice — first, when income is earned, and second, when interest and dividends on the investment financed by savings are received (for more information, see Dividends).
Corporate profits distributed to shareholders as dividends are taxed at the corporate and shareholder levels. The individual or company that saves and invests pays more taxes over time than if all their income was spent on consumption. Shifting the tax structure away from consumption toward a growth supportive tax code that promotes savings and investment would increase capital formation, job creation, and economic expansion. Numerous studies show that countries leading the world in innovation are those with large pools of capital that businesses, universities, and governments can access easily at low cost.