Publications

Resident Scholar Neil H. Buchanan offers an analysis of the macroeconomic effects of current proposals to reform the tax system (e.g., a flat tax or a national sales tax), focusing on the aspects of the proposals aimed at promoting saving. Buchanan notes that a drawback in the way in which saving is officially defined is that only businesses (and not households) are assumed to make purchases that have long-term payoffs—that is, personal spending on items such as education and durable goods is defined as consumption, when in fact it is investment in long-term economic well-being and therefore should be categorized as saving. The purest definition of saving would include all resources produced in the economy during the year "that are not consumed today but are put to use in a way that will provide returns to the economy in years to come." Consumption also should be redefined, the author says, to include those items utilized, but not directly paid for by consumers, such as employer-provided benefits and the value of owner-occupied housing.