Why should the tax laws to encourage saving be reformed?
A)because saving is a key determinant of long-run prosperity
B)to increase taxes on capital gain
C)because higher-income households are taxed too much
D)because economic theory clearly predicts that higher rate of return encourages saving

Question

Quizplus · Accepted Answer

Saving is a key determinant of long-run prosperity as it provides funds for investments that drive economic growth. Therefore, tax laws should encourage saving to promote long-term economic stability and growth.

Answer: D
 Economic theory suggests that higher rates of return encourage saving as they make saving more attractive to investors, leading to increased investment and economic growth. Reforming tax laws to encourage higher rates of return, such as offering tax breaks on interest earned from savings, would therefore incentivize saving and promote economic growth.

B and C are not good choices as they do not address the issue of encouraging saving, which is the focus of the question. Increasing taxes on capital gains and taxing higher-income households less are unrelated to encouraging saving.

Why Should the Tax Laws to Encourage Saving Be Reformed