This Committee has heard for years that the people of the United States save too little. Assuming this is true, the federal income tax must bear much of the blame. Despite the many slivers of tax relief available to some saving, current law continues to heap layer upon layer of tax on additional saving. In most cases, income is taxed as earned irrespective of what one does with it. If it is saved, it is likely to face multiple layers of additional tax in the form of taxes on interest, dividends, corporate income, capital gains, and estate taxes.
People respond to incentives and disincentives.
Because even reductions in relatively low-priced items can alter consumer choices. The tax code has a highly developed system of tax penalties to discourage taxpayers from cheating on their taxes. Reducing marginal tax rates and thereby reducing the tax on saving directly reduces the disincentive to save. If your goal is to encourage additional investment in plant and equipment, then rate reduction is your answer because it would reduce the cost of capital, particularly if the rate reduction is extended to the corporate income tax rates. Rate reduction reduces the tax on dividend and interest income and, if extended to capital gains, it can further reduce the tax burden on capital gains.