Positive news, yes? Actually, no. The percentage of after-tax income that consumers save personally is known as the personal savings rate. The increment’s 1% increase is an issue. Among 100 people, none spend. Because they may only purchase in certain quantities, they “save.” Their after-tax income that hasn’t been spent rises along with their income.

That may contribute to savings in macroeconomic terms, but that doesn’t mean Americans are better prepared to weather an economic downturn that leads to job losses, reduced bonuses and temporary layoffs. Nor does it help baby boomers prepare for retirement.

Tax cuts benefit the rich

Moody’s Chief Economist Mark Zandi estimates that three-quarters of the increase in the savings rate

since last year’s tax cut is due to the top 10%. The Tax Policy Center reports that after-tax income rose 2.9% for the wealthiest fifth of taxpayers, but only 1.6% for the middle fifth and only 0.4% for the 1st. /5 is lower. This is normal for the tax cut process. Overall, personal income tax has fallen as a share of income, from 9.6% in 2017 to 9.2% the following year, according to the Congressional Research Service. But according to the historical pattern, the rich benefit the most. The researchers concluded:
“Most of the tax cuts go to high-income businesses and individuals, who are less likely to spend on the increase.”

This is where the problem is. Savings may grow, but much of it sits dormant, stored in bank accounts and stock portfolios rather than boosting demand or providing a real cushion in the event of a recession. . Worse still, it’s clear that rising income inequality is actually holding back investment and growth, as critics have long argued.

At risk in case of emergency

So most Americans didn’t increase their savings rate. Why? They struggle to meet the cost of living. A famous survey by the Federal Reserve found that two-fifths of American households
no reserves to deal with emergencies of $400. Those in the bottom quintile spend 40% of their income just paying off debt, even owed just $40 to their local snack bar. They certainly do not benefit from the increased savings rate.

Median household income was $61,000 in 2017, up $20,000 since 2000, according to the US Census Bureau. But the median household debt is $137,063, more than double from $50,971 at the turn of the century. While there are few statistics on the debt-to-personal income ratio, it has certainly increased for the poor while falling for the rich. Gini out of the bottle

Another approach is to look at a savings account.

Only 28% of households with incomes of $25,000 or less even have a savings account, compared with about 60% for households with incomes of at least $70,000.

The average savings for the first group is just $670, according to a 2016 Federal Reserve survey, compared with $54,000 for those earning more than $160,000. Average savings increased 19% from 2013 to 2016 for households earning less than $25,000 but increased 80% for the $115,000 to $159,999 bracket, and a 42% increase for those with income. households with income over $160.

The savings rate may increase, but according to the Gini coefficient of the income distribution, the United States has the highest income inequality of the OECD’s 36 industrial economies, excluding Turkey, Mexico, and Chile, and it continues to grow (non-members of Costa Rica and South Africa also exceed income inequality in the United States). ). Only the reversal of the Gini trend will result in higher savings.