PT8.S1.Q14 - some policymakers believe

catgonzalez1974

I have a real hard time seeing the correct answer on this one. The correct AC is (B). I chose (E). I really didn't like E, but AC (B) I only liked 1/2. The 2nd half of the answer, ..."to make up for the attendant loss is tax-revenues" threw me off. I dismissed it in the last second because the stimulus stated that there was a side benefit to the government in relatively small cost in lost tax revenues. The stimulus goes on to say that there was never a net gain since folks just transferred money from account to another, and overall personal savings was unchanged. So there is my issues. (B) says nobody is going to save more, (I agree) and it's not going to make up for the attendant loss in tax revenue. BUT, there won't be any loss in tax revenue, since no additional money is going to be put into personal savings. I'm interpreting "attendant" as accompanying. Where did I go wrong?

thisissparta

The stimulus mentions that a "legislative proposal would allow individuals to set up savings accounts in which interest earned would be exempt from taxes until money is withdrawn from the account". In other words, these new savings account would be the result of legislative action. Those specific accounts would not be taxed.

While no additional money is being transferred, any new money that would be added into this new savings account (irrespective of where it comes from) would not be taxed. This would come at a cost to the government.

Irrespective of the source of the money, the government will have costs attached to any money that is added to this (new) savings account.