Rich Are More Sensitive to Tax Increases Today, Zandi says

[dkf]

http://blogs.wsj.com/wealth/2010/08/27/rich-are-more-sensitive-to-tax-increases-today-zandi-says/

It also may be economically unwise. Some of the most well-reasoned and factual arguments about the Obama tax increases have come from Mark Zandi, chief economist with Moody’s Analytics.

In a presentation at a Democratic issues conference in California this month, Mr. Zandi–who has advised both Democrats and Republicans–said he supports a one-year extension on the Bush tax cuts for the wealthy, with the cuts phased out starting in 2012.

He says that in normal times, cutting taxes on the wealthy doesn’t stimulate the economy much, since the wealthy tend to save more.

But today is different.

“Normally, I would firmly agree that raising taxes on people who make over $250,000 a year would not make a meaningful difference in the way they spend money. But I worry that these aren’t normal times and that even this income group may be sensitive,” Zandi said.

Why are they sensitive? Let us recall the data Mr. Zandi crunched for the Wealth Report earlier this month. It showed that the top 5% of Americans by income account for 37% of all consumer outlays. Outlays include consumer spending, interest payments on installment debt and transfer payments. That is nearly equal to the outlays of the bottom 80% of Americans.

The research also showed that the wealthy had negative savings rates in recent months, meaning they were spending more than they were earning.

So we have an economy that is over-reliant on the over-spending of the rich. That isn’t a sustainable growth model for any country in any period. But for now, it is all we’ve got. And a tax increase could reduce what little spending we have in the economy.

[RandomThoughts]

1. They will spend when someone will buy something.

So taxes on them has nothing to do with how they spend.

Unless they do it to try and control society by hurting the economy. And if they do that, they should not have control over the money anyways.


So all logic says tax them.

Get more money into the system by it being available to more of society, public works does that pretty good, if the companies are not spending, there will not be an inflation problem.



It really is not that complicated, really it isn't.

[Orrex]

3. +1

Nicely stated.

[Orrex]

2. Then give them tax breaks according to how they invest in the US economy

[CaliforniaPeggy]

4. They haven't created any jobs to speak of...

I don't think that argument holds water anyway.

And even if it reduces their spending, they will still have more disposable cash than the vast majority of the rest of us.

Raise their damn taxes, I say! Except it isn't really raising taxes...it's merely letting those tax cuts expire.

:grr:

[dkf]

9. Yet I don't think people realize the dilemma our Dems find themselves in.

You as an individual may be willing to risk putting the economy in a double dip recession as you are accountable only to yourself. Consider what our Dems face as they think through how they will vote. This will affect people throughout the nation.

[eridani]

22. It is failure to tax the rich that crashed the economy

If Bill Gates buys 20 SUVs, that is pretty piddling compared to a million people buying less expensive cars.

[dkf]

35. Yes but it has created a structural imbalance with an over reliance on the over spending of the top.

With middle income earners realizing they have got to save more there aren't enough spenders to float this economy if the top stops. As the economy grows we should be able to get the middle class back to their spending habits of old. But until they can discharge some debt they can't do the spending this country relies on.

[eridani]

37. Transferring income from the rich to the middle income will help that n/t

[dkf]

39. Except there is nothing proposed to do that and right now the top is spending more efficiently than

The middle class.

[Hannah Bell]

42. THAT'S WHY THEY NEED TO BE TAXED.

[dkf]

57. The imbalance of wages won't be fixed by tax policy.

And it doesn't fix the short term vulnerability of the double dip. Government is very inefficient at spending money. They still haven't spent the stimulus funds for goodness sakes. The rich are already planning what they will do when/if taxes rise. They are faster to react than the normal Joe.

[Hannah Bell]

41. what is this, the 10th or 15th time you've expressed your concerns that rich people

might stop spending money if the bush tax cuts are allowed to expire?

take their money & let someone else spend it, then.

this line is bullshit.

you know why they do 1/3 of the spending?

BECAUSE THEY GET 37% OF THE INCOME!!!!

AND IT'S BECAUSE OF TAX POLICY!!!

http://www.taxfoundation.org/news/show/250.html

[Mimosa]

49. Hannah, that makes sense

How did the rich survive the 1940s and 50s with those higher tax rates?

[alfredo]

10. Oh but all the creative people will go on strike and bring

America to it's knees.

[Hannah Bell]

43. sounds so familiar. is there a 40-page monologue on the virtues of strong-jawed

libertarians attached?

[alfredo]

53. Yep, and the warning that it might make you drowsy or

a crushing bore at parties.

[sakabatou]

5. Because they're greedy.

[bluestateguy]

6. And they'll spend the money right here in America, right?

Can you promise us that Mr. Zandi? That if we generously, graciously, magnanimously allow the rich the privilege of keeping their tax cuts beyond the 10 years they were originally enacted for under the previous president, that they will be good patriotic Americans and invest that money here in America, creating American jobs? Not into offshore accounts, not into the black hole of Wall Street, not into Kaitlyn and Dylan's trust funds, and not into country club dues.

That's what we can expect, right?

[dkf]

19. This isn't investments, it's consumer spending.

If they stop their overspending our consumer driven economy needs someone else to compensate. Yet all of us would prefer to save our money as we worry about retirement savings, emergency funds, college costs, etc.

Who will do the consumer spending that makes our economy tick?

[Hannah Bell]

44. The people & localities the feds transfer the money to. Like before bush 2.

so get a good night's sleep, no need to worry about this phony problem any longer.

[alfredo]

7. Oh boo fuckin' hoo.

[burrowowl]

8. In retail Neiman Marcus and Tiffany's are up

and even Walmart is down!

TAX THE RICH BASTARDS!

[dkf]

15. I imagine Neimans has already let people go. Yep.

http://www.stylelist.com/2009/01/24/saks-and-neiman-marcus-announce-layoffs/

You know things are bad when the rich stop shopping at the rate they use to.

Last Thursday, Saks Inc. announced it would be letting go 1,100 in-store and corporate support jobs, or 9 percent of its work force. But wait, the luxury department store also has plans to scale back on some of the commitments it had made to those employees who it will maintain, namely eliminating merit-based wage increases and suspending matching contributions to employee 401(k) plans for at least a year.

In addition, Neiman Marcus said it was cutting 375 jobs, or 2.3 percent of its work force to stay afloat in this economic downturn.

[bullwinkle428]

11. How much have the Koch brothers contributed into Mr. Zandi's account?

[stevedeshazer]

12. If that were true, we should just reduce the tax rate to zero.

Would that be enough for these greedy bastards?

:grr:

[stevedeshazer]

13. And on second thought, Mark Zandi can kiss my underemployed ass. n/t

[AnArmyVeteran]

24. Zandi's article is pure garbage and totally untrue.

He can kiss my ass too and everyone in the country who is unemployed.

[dkf]

32. He is a chief advisor to Nancy Pelosi.

[Hannah Bell]

45. bfd.

[lurky]

14. Does he think the money won't get spent if it goes to public works?

Or if it goes to lower payroll taxes for working people? He seems to think the only way money will get spent is if we give it to rich people. Which makes me think he's a really crappy economist.

[dkf]

17. You would have to attempt to cauterize the effect by adding new spending.

I'm not sure that will fly but who knows.

[suffragette]

16. Let's look at all the jobs and other ways they have helped

U.S. society in the 10 years of having those tax cuts.

Oh, that's right, pretty much not at all. Given the unemployment rate, I'd venture it's actually a negative number, with more laid off or outsourced than hired.

And how many of them benefited doubly as bankers or Wall Street by being bailed out, then giving themselves bonuses (wait, that's actually triple, isn't is) that represent more than most people earn in a year of hard work? That would be more than a few.

The Wealth Report is an apt name - by and for the wealthy, it looks to me.

Trickle down doesn't work. Never has; never will.

[dkf]

20. Our consumer spending has turned this country into what it is good or bad.

Who doubts that the average American overconsumes? Yet that provides the jobs we currently rely on. We don't all want to be farm workers after all so retail sounds much better.

[suffragette]

23. Then use the money regained from ending the tax cuts

for the wealthy to pay down the deficit and leave Social Security alone.

If they cut Social Security by reducing benefits and/or raising the age then we'll see many people spend even less out of fear for their financial security.

It would be even better to lower the age for Social Security so that people would feel safe and secure about retiring, be more willing to spend and would lead to younger people having more jobs available to them.

But it's not entirely consumer spending in the U.S. driving this, is it?

Again, what about the triple break in taxes, bailout and bonuses the wealthy received.

Just where has it gone?

[dkf]

29. Zandi is only suggesting extending the tax cuts for one year.

The potential social security situation won't be in the near future as far as I can tell. But we do need to address the structural imbalances that make us so reliant on the spending of the elite. The question is how do you time it and what do you put in it's place to create as little disruption to the jobs market as possible.

[Hannah Bell]

46. fuck zandi.

[suffragette]

51. So, we should redistribute to correct that

Agree with hfojvt, that if this does anything, it actually makes a case for redistribution.

As to Social Security, since the Bush redistribution of wealth through these tax cuts (and the subsequent borrowing of SS funds by the govt) is part of what has depleted the FICA we've been paying (and that the wealthy don't) then it's past time to pay it back.


If you have are bleeding, you apply pressure to stop it. You don't open it up more, then wonder why you feel worse.

[hfojvt]

18. oh noes, a tax increase will kill us all

Zandi apparently wants us to goto the third world graphic http://www.koch2congress.com/5.html

So the top 5% outspend the bottom 80% (because they have more income than the bottom 80%)?

That is an argument for redistribution - and NOT an argument for more breaks for the already rich.


Oh, and happy labor day Mr. Zandi, you pusillanimous Pinkerton-faced piece of shit.

[AnArmyVeteran]

27. Clinton job growth 22.4 million. Bush job growth with huge tax cuts for rich: Paltry 1 million jobs!

Let's see, under Clinton the tax rate was about 4 percent higher, but it led to 22.4 million new jobs. But when the tax rates were cut 4 percent it led to only 1 million jobs in eight years! Using these examples one could deduce that raising taxes INCREASES employment. As several others on DU have stated, without a huge war chest full of money, corporations are forced to put their money to use by hiring new people to create new business.

In the 50s the tax rate was 90 percent and the unemployment was just over 3 percent.

This last line is just for fun and I'm not saying it's true, but I could use just the data I have stated above and determine that if we taxed the rich 99 percent we would have full employment.

[aquart]

21. And why should anybody care?

[eridani]

25. So, if lowering taxes on the rich creates jobs, why was not a single net job created

--after the Bush tax cuts?

[suffragette]

26. Looks like Zandi is contradicting himself

http://crooksandliars.com/taxonomy/term/10416,3796
July 19, 2010
Many economists are pushing for targeted benefits such as food stamps or extending unemployment benefits. Mark Zandi, chief economist at Moody's Economy.com, estimates that every dollar dedicated to increasing food stamps puts $1.73 into the economy. Increasing jobless insurance benefits typically gets a return of $1.64 per dollar.

~~~
In congressional testimony last year, Zandi said tax cuts delivered the least bang for the buck, with a dollar's worth of temporary nonrefundable rebates worth $1.02 with a one-year lag. Permanent tax cuts yielded less than 50 cents of additional spending.


So, first he goes to work for McCain:


http://blogs.wsj.com/economics/2007/07/13/all-the-candidates-economists-mccains-team/

Sen. John McCain released a list of his advisory committee of economists Thursday. The list includes some well-known business economists.

Mark Zandi, chief economist at Moody’s Economy.com, is one of the most widely quoted economists in news articles. In an interview, he said he became involved with the campaign over a year ago through Kevin Hassett, a scholar at the American Enterprise Institute and adviser to Mr. McCain in 2000. Though a registered Democrat, Mr. Zandi calls himself “eclectic … I’ve done work for both Democrats and Republicans.” On whether his advisory position would compromise the advice he gives clients, he said a possible conflict had yet to arise. If it did, he would recuse himself. Asked whether his employer, Moody’s Corp., had a policy on employees participating in campaigns, Mr. Zandi said, “I don’t know. I guess I’d better find out.”



Then he turned around and started "advising" the Democrats on budget matters.

I think we could do much, much better.

[dkf]

34. The impact of tax cuts are different from the impact of raising taxes I imagine.

If you got a raise, would you do the exact opposite action if your salary was cut?

Personally in both cases I would save more. If I got a raise I would save it and if I took a pay cut I'd take that as a warning sign and cut spending to the bone.

[suffragette]

50. Let me bold Zandi's statement to highlight the contradiction

In congressional testimony last year, Zandi said tax cuts delivered the least bang for the buck, with a dollar's worth of temporary nonrefundable rebates worth $1.02 with a one-year lag. Permanent tax cuts yielded less than 50 cents of additional spending.

[BzaDem]

28. I have a question. Would you support letting taxes on the rich rise and using the money to cut taxes

in a more stimulative fashion?

You keep posting that the rich spend money and therefore we shouldn't raise taxes on them.

But surely it is also true that the middle class spends money. In fact, even if Zandi is correct that the rich are somewhat more sensitive to tax increases, surely the middle class is EVEN MORE so. In other words, even if the marginal propensity to consume of the rich is not 0, the poor and the middle class still have a much higher marginal propensity to consume each additional dollar than the rich do.

Given that, wouldn't it make MORE sense to take the 700 billion of tax cuts on the wealthy, let them expire, and redirect the 700 billion to more tax cuts on the middle class and the poor?

Or as an alternative, Republicans keep whining about small businesses being impacted by the top tax rate rising. Fine. (For the sake of argument.) Couldn't we redirect the 700 billion to tax cuts directly for small businesses (tax cuts on capital investment, research and development by small businesses, etc)? Surely that would have more of a stimulative effect than just giving it to the rich.

In other words, why are you advocating so much for extending the tax cuts for the rich as a particular form of stimulus, when there are other forms of stimulus (and even other forms of tax cuts) that are more stimulative?

[dkf]

31. Normal assumptions are that the rich save and the poor/middle class spend.

This would make funding the middle/lower class more stimulative. Except with the credit crunch, the lower and middle class have changed their behavior and are saving more while the top income earners are actually spending more than they earn! The rich have become the overspenders and the middle/lower class the savers.

This means tax cuts to the middle/lower class are no longer as stimulative as they used to be. The degree of efficiency depends on if the funds are spent or not.

Irony is the government really does want people spending all they can because this behavior increases jobs.

All I ask is that if we do decide to tax whoever, that we have measures in place to counteract the expected decline in spending or that we are able to cope with increased levels of unemployment. We must add to this equation the speed at which the top earners will react. If they stop spending at the government's announcement but months prior to implementation how do we fill the time gap with spending. In addition, the places Government/middle class/lower class will spend are probably different from where the upper incomes will. We have to realize we are playing favorites here. I imagine there will be displacement of retail workers resulting.

That is my best guess though and I am not by any means an economist but I do like to consider the various outcomes and I'm not sure many people here realize how oddly structured our current setup is and what the result of the policies they are advocating for are.

[BzaDem]

40. Making the tax code more progressive is "playing favorites?"

And therefore we should not do it? Seriously?

You could just as easily argue that our previous tax code is "playing favorites." Any tax code that isn't a flat tax is "playing favorites" under that definition. The hypothetical turnover you mention (increasing hiring in some areas while decreasing hires in others) is certainly not anti-stimulative at all. Every month tons of people are hired and tons of people are let go; this happens all the time in every economy. The problem is that the NET hiring is negative, not that the turnover is positive. The turnover you speak of is not anti-stimulus and would not counteract the actual stimulus of giving money to people with a greater marginal propensity to consume than the rich.

Even if the middle class is saving more than normal, and the rich are spending less than normal, that does not mean that the middle class still does not spend more per dollar than the rich. The gap between the two groups' marginal propensity to consume was huge in the first place, and lowering the gap does not erase or reverse the gap. Therefore, redirecting 700 billion dollars from letting the rich tax cuts expire to the middle class and the poor is more stimulative than extending the Bush tax cuts for the rich.

(And if there were any doubt about the marginal propensity to consume for the middle class, then perhaps the 700 billion should be spent entirely on the poor. The poor have an incredibly high marginal propensities to consume, because they need every dollar they get to pay for basic expenses. Essentially every additional dollar is spent.)

[Taitertots]

30. Sounds like self serving bullshit

They should be begging us not to show up at their houses with pitch forks. Instead the wealthy have us fighting to pay for our bosses tax cuts.

Big surprise, a firm tied to the richest people defends extremely low taxes for the super rich. I'm more surprised that there are enough people stupid enough to believe it.

[dkf]

33. He is a chief economic advisor to Nancy Pelosi.

This presentation was done for Democratic officials.

[Hannah Bell]

47. who cares? he's giving out advice that benefits those who pay him: RICH PEOPLE LIKE PELOSI.

NOT 90% OF THE POPULATION.

RICH PEOPLE WANT TO KEEP THEIR TAXES LOW. WHAT A SURPRISE.

FUCK THEM.

[Taitertots]

48. Nancy Pelosi should get an adviser that is not a self serving piece of shit that is.....

Partially responsible for the economic meltdown in the first place. Who also advocates policies that can do nothing but increase wealth inequality and income inequality.

[suffragette]

52. And he was an advisor to McCain

Looks like he's doing very well for himself and his peeps at he expense of all of us.

With so many exceptional economists available, this is who they pick?

They can and should do better for US.

[dkf]

54. He was an advisor to Obama on the stimulus.

He is a Democrat too.

[Binka]

58. Who The Fuck Cares? As Pointed Out Up Thread He Advises The Rich

It doesn't matter their political stripe. What the fuck are you doing defending this shit stick? Don't bother replying dkf you are not welcome on my DU anymore.

[Jim Sagle]

36. DLC hogwash!

[RandomThoughts]

38. There is a logic flaw there.

How would taxing the rich reduce spending, if Government spent that money.

It would only reduce spending if it lowered deficit, and that could be compensated with printing money to increase money in circulation. And even if it did lower deficits, then banks would loan that money to other people.


And if there was an inflation problem that could be offset by increasing amount of required capital for banks to loan.


How would taxing the rich reduce spending, if Government spent that money.

Think of it this way, tax 50% of money from rich, then give it back to the same people it is taxed from. Would spending decrease? That would be like not changing tax. See the equation.

Now instead of giving it back to them, give it to middle class through funding of works projects.

No raise in tax, no change in spending.

billions from rich, given to works project, how could spending go down?


The taxation is not the question, you can remove that part of the equation with that example, the question is where does money get spent to stimulate the economy, with the rich or with works projects and middle class programs.

So you cant argue that taxation would lower spending. So there is no reason not to tax.

[dkf]

55. Consumption by the Government would have to increase.

The government and the population is already spending a certain amount. If one segment decreases spending someone else will have to increase spending to keep consumption steady.

[RandomThoughts]

59. Although I like to think of it as demand, then consumption from demand

The assumption on taxing the rich is that it will decrease spending.

It can only do that by psychology, not by equation. If what is taxed is spent.


I started to post on the topic with broad thoughts on production above demand, planned obsolescence and created consumerism, and the concept of who creates demand and how demand is created.

But posted that already.

To keep consumption steady, all you need is something for people to buy, the desire to buy it, and the money to buy it.

If the rich do not have the desire to spend, nor something to buy, they do not help stimulate the economy.

So they have too much money, so people with the desire to spend, but do not have money have to get that money somehow.

Increased wages by better bargaining by unions, social works programs, even printing money into a bank like North Dakota where the money is not for profit for a few people, but then loaned to spenders, are all ways to move money to places it is spent.

The only argument for the rich having billions is 'divine right', if they make that argument, or 'anarchy, 'if you can take it it is yours.' And that is why Goldman Sachs said they are doing God's work, because they need the concept in their mind, of divine right, to justify obscene wealth, and why the Republicans push no laws anarchy when supporting rich, so they can go with ideas of survival of the fittest style natural law.


your statement that the population is already spending, if that thought is static, is disprove by any person that would spend more if they had more, and that group is those with less money, however part of that spending can be through representatives to funnel it to projects for many people also, like social works projects.

Government consumption does not have to increase, Government can help create societal consumption by spreading out the money by many programs.


And I am still due money for beer and travel.

[county worker]

56. It's OK to lower our incomes but let's don't bother the wealthy because they may chose to spend!

We WILL spend! Cut our taxes and raise our incomes!

I think that some of those advisers can not understand the lower classes. They think only in terms of the wealthy and corporations. They think trickle down all the time! It's time we tried trickle up!

[Crunchy Frog]

60. The rich just have more delicate sensibilities all around.

Best to not place any extra burdens on them.