Moody's: Tax Cuts for Wealthy Americans Lead to Savings NOT Spending

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    Sep 13, 2010 5:59 PM GMT
    It seems like all those on here who rant and rave about how tax cuts for the rich will stimulate the economy are completely wrong. An article from today's Bloomberg, based on research from Moody's (that radical band of left-wing activists). Curious to the reactions:

    BloombergHand 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.”

    The Moody’s research covering couples earning more than $210,000 found that spending by the wealthy is more likely to be influenced by the ups and downs of the stock market than changes in income-tax rates.

    Stock-market performance is the “primary factor that is driving the savings of the top 5 percent of households,” said Mustafa Akcay, economist and co-researcher of the savings data.


    http://www.bloomberg.com/news/2010-09-13/rich-americans-save-money-from-tax-cuts-instead-of-spending-moody-s-says.html
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    Sep 13, 2010 10:28 PM GMT
    Yup, and have the rich collect more interest from their extra cash:
    http://www.cnbc.com/id/32777885/How_The_Rich_Are_Saving_Now

    Experts who work with the wealthy and observe their spending habits say rich folks are sitting on their cash.

    Just like the rest of us, they're worried about the future.

    Suddenly uncomfortable with the nation's financial volatility, the wealthy are revisiting their investment and savings strategies, says Chris Geczy, director of the Wharton Wealth Management Initiative at the Wharton School in Philadelphia.

    "They're consuming less and saving more," Geczy says.

    Like so many other Americans, "the mass affluent were overextended" in real estate and investments gone sour, he says. Now, they are more likely to invest in fixed-income vehicles.

    "They're still scared of risk," he says.
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    Sep 13, 2010 10:38 PM GMT
    southbeach1500 said
    They've squandered enough money already.


    http://nontrivialpursuits.org/economic_stimulus.htm But there is more to the story. The only reason why governments collect tax revenue from citizens is in order to spend it. When governments spend money, it automatically becomes income to a large number of citizens. So instead of causing aggregate spending to drop, an increase in tax rates actually causes it to increase. Why? Because some of the money that people receive as income from the government---that was originally obtained from taxpayers---would have been saved, if certain taxpayers (typically wealthy ones) had not used it to pay their taxes. When the government collects & spends money that would have been saved, it is pumping money into the economy that would otherwise have been removed from it.

    This can be a very desirable outcome if your country is suffering from any kind of unemployment. The act of saving money may not be egregiously harmful to the economy most of the time, but it can do an incredible amount of damage if it “gets out of hand.” The Great Depression, for example, occurred for one very simple reason: those who had money that they could have spent chose to save it instead, denying people jobs. Those who would have been happy to spend that money did not have it in their possession. It is a reality that economists summarize in the equation: income = savings + consumption (spending).

    This relationship between spending, saving, and jobs is important. The only reason why there is ever any unemployment is because too much saving takes place. The only way it has ever been possible to reduce unemployment is through the increased spending of either individuals or firms or governments. When can we say that an economy has finally achieved its optimal level of savings? Answer: when there is no unemployment. When can we say with certainty that there is too little saving taking place in an economy? Answer: when the economy is booming, there is no unemployment, and hyperinflation is threatening. Only then will an increase in net savings not threaten jobs.

    Advocates of Supply-Side economics have apparently never realized that when they recommend across-the-board income tax cuts and matching reductions in government spending, they are proposing a policy that---all else equal---is guaranteed to either cause a recession or make any ongoing recession worse. Across-the-board income tax cuts are contractionary (assuming matching spending cuts) because wealthier recipients of income tax cuts will save some of the extra disposable income they are given. Since not all money that is saved is lent out to borrowers, there is a net leakage of money out of the economy whenever money is saved.

    Tax cut enthusiasts like to refer to tax cuts as though the incomes of other people are not dependent on the money that would be returned to taxpayers. They suggest, instead, that everyone's tax money ends up being sucked into a powerful Black Hole known as Big Government where it disappears forever. The truth they ignore is that even if an income tax cut were designed to give refunds only to people who would be certain to spend all of it (poor people), it would still not provide any net stimulus to the economy. When spending-cut-dollars match tax-cut-dollars, the money that refunded taxpayers would get to spend would have been spent by the federal government anyway. This means that no net increase in aggregate spending can occur, so there is no net increase in jobs or incomes.
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    Sep 13, 2010 10:47 PM GMT
    Moody's: Tax Cuts for Wealthy Americans Lead to Savings NOT Spending

    OMG! You mean that giving the mega-rich tax breaks, that the Republicans & Teabaggers want, will not help average US citizens?

    What about all the jobs that are supposed to be created? Like being chauffeurs, and gardeners, and cooks and house servants, to the super-rich? And what about all those fast-food jobs, while real jobs are being outsourced overseas to increase corporate profits?

    You're destroying our Republican dream for prosperity! Ordinary people are supposed to live on the edge of near poverty, while only the Republican rich can be.. well... rich. Let's get our priorities straight here.
  • Webster666

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    Sep 14, 2010 3:27 AM GMT
    The lying Republicans try to claim that the rich make up the engine that drives the economy, and that lowering their taxes will give them more money and, consequently, they'll expand their businesses and hire more people.

    Then, how come the Bush tax cuts resulted in the total melt down of the American economy ?
    Huh ?
    Huh ?

    Of course the rich don't spend their money.
    That's why they're rich.
    You can only want so much stuff.

    The poor (and what little is left of the middle class), on the other hand, always want lots of stuff, so they spend almost all of every cent they get, thereby keeping the economy churning along.

    So, go ahead and tax the hell out of the rich fuckers.
    But, that won't happen, because the rich fuckers will bribe the Republicans in Congress (as they always do) to do whatever the rich fuckers want, in this case, to renew the Bush tax cuts for the filthy rich.
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    Sep 14, 2010 3:37 AM GMT
    southbeach1500 saidLess money for the government (compared to what they get now) can't be anything but a good thing.

    They've squandered enough money already.



    There's nothing that could possibly be more of a squandering of our money than forking it over to the ultra rich in the form of tax cuts.
    They'll just stick it into their bloated bank accounts instead of injecting it into the economy.

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    Sep 15, 2010 1:30 AM GMT
    southbeach1500 said
    rickrick91 said
    There's nothing that could possibly be more of a squandering of our money than forking it over to the ultra rich in the form of tax cuts.




    You act like it's the government's money to begin with: "forking it over to the ultra rich in the form of tax cuts."

    How can the government "fork over" something that it doesn't have to begin with?

    When someone pays less in taxes, they get to KEEP more of their own money.

    Do you understand?


    Whether or not it's someone's money is debatable in my opinion. Is LLoyd Blankfein's money really his? Or is it the tax payers who bailed Goldman and, more importantly, AIG, out?

    You seem to think that the money you or anyone else earns (except me, because I work in nonprofit) is somehow manna that you receive from God. When actually it's someone else's money (just as mine is) that was given to you in exchange for some good or service. That you find acceptable. But when it comes to paying for basic things like infrastructure that good or service should be free?
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    Sep 15, 2010 5:07 AM GMT
    southbeach1500 said
    rickrick91 said
    There's nothing that could possibly be more of a squandering of our money than forking it over to the ultra rich in the form of tax cuts.




    You act like it's the government's money to begin with: "forking it over to the ultra rich in the form of tax cuts."

    How can the government "fork over" something that it doesn't have to begin with?

    When someone pays less in taxes, they get to KEEP more of their own money.

    Do you understand?




    You seem to be under the assumption that citizens owe their country nothing and that they should keep every penny they have or make.
    NOT so.
    There is no free lunch.
    The safety and security of the American people and the maintenence of the systems that keep our country running, cost money - and tax revenues pay for it.

    You seem to care more about your own outlook and your selfish greed than you do about the good of our nation.
    How unpatriotic.
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    Sep 15, 2010 2:09 PM GMT
    Wow, this is terrible news. There should be a law against people saving money if they wish to do so, it hurts other people!!!!