Bush Tax Cuts - There Are Better Ways To Incentivize Saving

The only somewhat coherent argument for keeping the Bush tax cuts around for the top 2% is that it will create incentives for long term investment. Yes, this is important, no extending the Bush tax cuts will not help. Long term means just that - people need the expectation that long term tax rates will still be low.

1. Even an indefinite extension cannot work because it is unrealistic that we can cut spending alone to eliminate our current deficits. Realistic expectations are that taxes will have to go up - right around the time you expect to realize the fruits of your investment today. There is no one that would expect a long term commitment to low marginal tax rates.

2. How is a low tax on realized income an incentive to save? It's not, it's incentive to realize income and maybe use it to invest.

3. The best way to create savings incentives is directly: create accounts that can grow tax free (like a Roth but for anything) and tax deferred (like a 401k, but for anything). Then offset the cost of these accounts by raising taxes on realized income - this could likely be done without raising tax rates and simply by removing the existing bribery in the tax code that is distorting market prices in everything from corn to houses. This way it works more like a consumption tax - people who choose to realize a large income would only do so to consume - they need not have realized income in order to save - and if they do, realized income from savings can later be tax free.

Update:

Corporate taxes are also a tax on savings - your 401k grows slower because good companies that don't have good enough lobbyists to not have to pay a ridiculous 40% corporate tax rate grow more slowly. Savings incentives will be raised by being able to invest in companies not held back by high tax rates. The Bush tax cuts are simply the wrong argument and keep us in a consumption now trap.