Rich Americans Save Tax Cuts Instead of Spending, Moody's Says

[sabra]

Source: Bloomberg

Hand 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. President Barack Obama wants to extend the cuts for individuals earning less than $200,000 and couples earning less than $250,000 while ending them for those who earn more.

“I would tend to wonder how much the tax cut actually influences spending behavior,” said Chris Cornell, an economist who mined government reports back to 1989 for West Chester, Pennsylvania-based Moody’s Analytics. “Spending by the top 5 percent of households seems much more closely tied to business- cycle issues than it does to tax-cut issues.”

...

After the second round of Bush tax cuts in May 2003, the rich also increased their saving, with the rate climbing to 7.6 percent in the first quarter of 2004 from 2.2 percent in the second quarter of 2003, the Moody’s data show.

...

On the other hand, tax relief for families with “lower income, few assets and poor credit would probably” spur spending, he said. Elmendorf said because of job losses and a drop in assets over the past two years more families “probably fit that description now.”

Read more: http://www.bloomberg.com/news/2010-09-13/rich-americans-save-money-from-tax-cuts-instead-of-spending-moody-s-says.html

[GreenTea]

1. This is fact-They certainly haven't produced any jobs with the 10 yr. Bush deficit raising tax cuts

for the richest two percent....But they do buy mansions in other countries, bigger faster yachts and private jets with their tax cuts.

And if these republican wealthy do invest, it's in other countries where corporations have out-sourced OUR jobs or in countries who have slave labor (Communist China).

But mostly, the same wealthy just put their huge tax cuts in their off-shore accounts.

[Frustratedlady]

2. That doesn't count the money they hide in other countries/islands, does it?

In fact, whatever happened to the searches/discoveries the Obama administration found on various islands and Swiss bank accounts? Didn't the Swiss disclose some information and people were asked to step forward or wait for the tax bill?

Was there ever an accounting of that money or haven't they collected it yet?

[sam sarrha]

3. who are the rich.. what is rich? top 1% richest has 6X more financial wealth than bottom 80% >>Link>...

http://sociology.ucsc.edu/whorulesamerica/power/wealth.html

the top 1% holds 42% of financial wealth, the Bottom 80% holds 7% of Americas Financial wealth..

the Bu$h tax cuts really only help the top few.. subsidizing the richest people on the face of the earth..

the Bu$h tax cuts are responsible for 1/2 the Debt

the GOP believes that Wealth is the Measure by which God favors a man.. thus it is a Sin to Tax a Rich man. thus all their tax cuts for the rich.!

[drm604]

4. This has always seemed like common sense to me.

I'm glad to see some confirmation. Especially when it's a finding by Moody's and reported by Bloomberg.

[Igel]

5. This gives me a headache.

For lots of reasons.

The tax cuts usually occurred as the economy was improving, in other words as salaries picked up and assets appreciated. If savings include assets that appreciate, of course saving rates went up. If income picked up without confidence of a long-term change, saving rates should go up. The OP--whatever the actual report does--assumes that appreciation and longer-term predictions don't matter.

I note that most of the tax breaks we got last year went into savings. We are not rich. But we have little sense of financial security. If we knew that the tax breaks were permanent and the economy showing secular improvement, we'd have spent the money.

The article reports on fairly short-term effects. If the * tax cuts led to increases over the course of 3 quarters, what happened in year 4 of the cuts? The claim is implicit that saving rates continued high. This needs confirmation, and the savings rate still needs to be teased out from any asset appreciation or depreciation. The assertion is also implicit that after tax rates increased the savings rate by the well-off remained negative, even though net wealth by the rich increased.

The report has to show what lower income asset-poor families spend their money on. Is the goal to fund China's growth? Import more strawberries from Mexico? Fund low-wage service jobs? Help support relatives abroad? Support domestic manufacturing? It matters, I'd think.

I'm asked to believe. I'd rather not have to go on faith, however pleasing it would be.

And a final point is the revised and probably to be re-revised bank holding requirements. When the capital reserve requirements have increased and led to a reduction in the money supply, is it appropriate to reduce holdings by sending the savings rate for the top earners negative and put downward pressure on the money supply?