Critics of changing tax laws to encourage saving argue that reducing taxes on saving:
d. Reduces capital formation and growth
When taxes on saving are reduced, individuals and businesses may choose to save more, rather than investing in productive assets. This can lead to a decrease in capital formation, which refers to the process of building up the physical and financial capital stock of a country through investments in infrastructure, machinery, technology, etc. A reduction in capital formation can hinder economic growth in the long run as it limits the ability of businesses to expand, innovate, and create more jobs.
By discouraging saving through tax breaks, critics argue that it could ultimately slow down the economy's growth potential by reducing the funds available for investment in productive assets, which are crucial for driving innovation, productivity, and overall economic development.
