In a 1988 interview with this magazine, then known as The Stanger Register, Lawrence Summers, an economic advisor to Presidential candidate Michael Dukakis, addressed some perennially hot topics–taxes, the Federal budget deficit, and Social Security–as excerpted below. Summers has since been Treasury Secretary and is currently president of Harvard University.
Register: To stimulate savings, some economists have suggested reducing taxes on long-term capital gains to their 1986 level. Would that work?
Summers: I’d be reluctant to cut the long-term capital gains tax, because I think that’s a major incentive for tax shelter activity. The most effective and reliable way to increase national savings is to reduce the federal budget deficit. That’s where I would start.
Longer term, we can increase our national savings rate through Social Security trust funds. The Social Security compromise enacted in 1983 calls for the accumulation of large trust funds within the next 15 or 20 years, so that the baby boom generation will be prepared for retirement. By letting the Social Security trust funds accumulate current surpluses, we increase the national savings rate. So, we should not allow politicians to use the trust funds to finance expenditures or deficits elsewhere in the government budget. In addition, I think there’s a case for appropriate targeted savings incentives, like IRAs.