February 13, 2003

Tax-Free Savings Plans

Making interest income tax-free would cause people to work harder when they are middle-aged and less when they are old.

An income tax applied to interest income lowers the after-tax interest rate.

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Removing this tax would have the same effect as increasing the interest rate.

We can apply this result to our PPF diagram for saving for retirement.

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Posted by bparke at February 13, 2003 03:56 PM