Except, the wealthy don’t use savings accounts

It’s all in the argument – the more obfuscated the better. From Bloomberg:

Give the wealthiest Americans a tax cut and history suggests they will save the money rather than spend it.

Tax cuts in 2001 and 2003 under President George W. Bush were followed by increases in the saving rate among the rich, according to data from Moody’s Analytics Inc. When taxes were raised under Bill Clinton, the saving rate fell.

The findings may weaken arguments by Republicans and some Democrats in Congress who say allowing the Bush-era tax cuts for the wealthiest Americans to lapse will prompt them to reduce their spending, harming the economy.

The problem with this argument is that while wealthy people are not conditioned to dump their next paycheck on a new wide-screen television, they don’t sock their money under the mattress either.

They invest it. Not in savings accounts, but in the equity markets, in real estate, and in small businesses.

It’s counterintuitive to suggest that the wealthy can only help jumpstart the economy via consumer goods purchases, unless the purpose of your argument is to consolidate control over the stock market, housing prices, and the entrepreneur.

Unfortunately, stimulus directed into union coffers while the average person’s IRA sits in the toilet, toying with FHA/Fannie/Freddie and other “affordable lending” purse strings while foreclosures sit empty on every street, and burdening the independent businessperson with 1099s for every check they write, is all about that.



Smithhammer says:

I’ll take it one further – it’s really all about election cycles, pure and simple. There is no coherent, believable rationale behind tax cuts for the wealthy “jump starting” the economy. But there is a very solid rationale behind a proven populist tactic for securing wealthy support in the next election. Of course the wealthy are going to enthusiastically back whichever candidate is touting tax cuts for the same upper class that the candidate him/herself comes from.

There is so much banter about whether we live in a democratic state, if we’re becoming a socialistic state, yadda, yadda….the truth is we are a rock solid plutocracy, have been for some time, and will continue to be so as long as we continue to let ourselves be distracted by all this inane partisan smoke and mirrors.

But getting back to the issue at hand, I’m continually amazed at how many working class people defend so many policies that don’t benefit anyone from their income level, simply because their sense of morality, faith, what have you, has been co-opted into a party platform.

I was thinking purely dollar terms here, and the fact is private investment is the driving force behind small business and the vast majority of employment. Without that capital, you (ostensibly) cannot create new products and services, nor drive demand for them. We are, after all, creatures that require new and shiny, whether it be video games, iPhone apps, “unbreakable” fly rods, or chef’s recipe to savor.

I’ve yet to see taxpayer money redeployed into anything that would be described as tasty, and the less capital the “investment class” has to distribute the more bland the dish will likely become.

Smithhammer says:

Right, but the rationale behind tax cuts for only the wealthy still makes no sense to me (as anything other than a self-serving move). What good is freeing up available capital on the part of the “investment class,” if middle and lower income consumers have no disposable funds with which to buy the things that supposed new products and services offer?

Agreed. There has to be a mix to “jumpstart” the process. Otherwise you must play a waiting game until enough jobs are directly created, and eco-systems arise around the new products and services – think iPhone apps again (versus just the hardware), or simply a new Hardy dealer (which pays for an extra shop hand) – before you see real results.

Unfortunately, a combination of mass de-leveraging (which effects discretionary spending) combined with commodity price inflation (which effects bare necessities), has the economy in a heck of a bind.

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