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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.
darn that reality, once more
Sen. Kerry flip-flops on tax cuts - NYPOST.com
cuz if ya can't count on kerry...
The argument seems a bit circular.
The article's conclusion is that when tax rates are cut for the rich, they save it instead of spend it. Where do rich people save money? Not in a checking account earning .5% interest, but in mutual funds or stock portfolios. When people start pouring money into mutual funds and stock portfolios, what happens to the broader market? It goes up. What happens when the stock market goes up? According to this study, those same people spend more.
The Republican argument quoted in your article is not that the tax cuts for incomes over $250k make those people go out and buy more paper towels, but that it spurs investment. It sounds like this study explicitly confirms that.
In answer to your two questions.
1. Where do rich people save money?=There has been a lot of money going into dividend paying blue-chip stocks lately.
2. When people start pouring money into mutual funds and stock portfolios, what happens to the broader market?=Then your blue-chip stocks start going up and it is time to look into some growth stocks.
IMO, one has to be careful about overgeneralizing. Tax cuts are a good remedy for addressing supply shocks. They are quite ineffective in addressing demand shocks.
In general, tax cuts are a supply side remedy. Low-income persons, who have a higher propensity to consume, will spend a greater share of their tax relief than wealthier persons. Wealthier persons will invest the capital, reducing the overall cost of capital for business formation/expansion (the supply side). Such an approach was ideal for the early 1980s when the nation needed to expand aggregate supply so as to help ease inflationary pressures (too many dollars chasing too little supply).
Tax cuts are not an effective demand side remedy and the 2007-09 recession represented a substantial demand shock. Hence, if one is seeking to stimulate consumption (aggregate demand) in the face of uncertainty, increased fiscal expenditures e.g., on infrastructure will provide far more bang for the buck than tax cuts. Tax cuts will merely be pocketed by risk-averse recipients, not spent. Not surprisingly, when CBO released data on multipliers from the fiscal stimulus' various provisions, tax relief measures generated, on average, much less impact (typically <$1 for every $1 of tax relief) than direct spending measures (e.g., infrastructure spending, which generated much more than $1 in economic activity per $1 of expenditure).
My point is that the result of those high earners saving more appears to be a condition that leads to those same high earners spending more. If true, it seems a bit difficult to argue that said actions don't eventually lead to spending.
Moreover, the article doesn't really address the republican argument. Republicans don't appear to be arguing that they lead to spending so much as they argue that they lead to investment. The underlying study supports that.
I heard that the latest CBO report says that the budget could come back into surplus by 2012, but it would require, that the Bush tax cuts would have to expire at the end of the year.No link as of yet.
When you factor in tax hikes, the unemployment rate and the current government spending, there's no way that a surplus can occur.
As long as the Bush tax cuts aren't extended to corporations, the economy is going to stay in the crapper.
apdst
When you factor in tax hikes, the unemployment rate and the current government spending, there's no way that a surplus can occur.
As long as the Bush tax cuts aren't extended to corporations, the economy is going to stay in the crapper.
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