Chicago Magazine | July 30, 2012
During the recession, perhaps the most crucial question is: where’d the money go? A lot of it is sitting in corporate accounts, due to major changes in tax and regulatory systems, and a big demographic wave of boomers putting away money for their own futures.
Via Dylan Matthews, a new working paper from two University of Chicago Booth economists shows that austerity isn’t just for governments: the share of GDP going to labor has been in decline in recent years, while the share going to corporate savings has increased, not just in the U.S. but in many developed countries.
In short, U.S. corporations went from being net debtors to net savers. What happened? A Philadelphia Fed paper cited Karabarbounis and Neiman gives a hint:
There is no question that dividend taxation has eased up over the past 40 years. The decline has been driven by: (i) a decline in marginal income tax rates; (ii) an increase in the share of equity held by ﬁduciary institutions who pay no taxes on dividend income or capital gains.[snip]
Overall, our results suggest that a decline in dividend taxes and regulations over the past 40 years, goes a long way in explaining the rise of corporate net savings to capital in the U.S. during the same period.