Will elimination of taxes on savings help the middle class?

I was in the mood for a little napkin math today so picked up on the line from last night’s debate from Gov. Romney stressing that he would eliminate taxes on the savings of middle-class families. In this case, middle class families consists of people making less than $200,000.

“No tax on your savings. That makes life a lot easier. If you’re getting interest from a bank, if you’re getting a statement from a mutual fund or any other kind of investment you have, you don’t have to worry about filing taxes on that, because there’ll be no taxes for anybody making $200,000 per year and less, on your interest, dividends and capital gains. Why am I lowering taxes on the middle-class? Because in the last four years, they’ve been buried. And I want to help people in the middle class.”

What’s the math on that?

Searching for the best savings rate online, the major non brick-and-mortar banks are offering about .75% annual return.

The site, Statistic Brain, says the average amount Americans have stashed in a savings account is $3,800.

According to this calculator, that yields about $28.59 a year. Here, you can calculate yours too…

Interest Income Calculator

Interest income is taxed as ordinary income, so the amount of tax depends on your tax bracket.

The highest bracket under the plan taxes these things at 33%. So, if you made $199,999, you save $9.53 a year.

The average American household income, however, is $44,000. Assuming there’s no reduction in the adjusted gross income (highly unlikely), the interest income is taxed at 15 percent. So the proposal saved a family $4.29 a year.

But 25 percent of households in the U.S. have no savings at all. And the average retirement savings in a household is $35,000.

If all of that were shoved into a savings account (unlikely), it would yield about $253 a year in interest and the tax on the highest earners in Gov. Romney’s definition of middle class would be $83.49. But, of course, many retirement funds are in accounts that pay no taxes until they’re tapped after age 65, at a lower tax rate.