Raise Taxes on Savings? Tell Joe It Ain't So!

Martin Feldstein says, Raise Taxes on Savings? Tell Joe It Ain't So!:

Keeping the low rates on the income from savings should now be the highest priority of tax reform. Eliminating the tax on such income would be even better.

Here's why. A tax on interest, dividends and capital gains creates a major distortion in the timing of consumption, and also exacerbates the adverse effects of the income tax on all aspects of work effort and personal productivity. Such distortions create unnecessary economic waste that lowers our standard of living. The combination of a lower tax rate on the income from savings and a revenue-neutral rise in the tax on earnings can produce a higher net reward for additional work and productivity, as well as a reduction in the distortion between consuming now and in the future. That would reduce the economic damage caused by the tax system while collecting the same total revenue with the same distribution of the tax burden.

(Hat tip to Marginal Revolution.)