Business

Moody’s: Rich Don’t Spend Tax Cuts

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Bloomberg has some news that reinforces what many of us suspected…the rich save their tax cuts:

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.

But tax cuts aren’t the primary driver of rich spending.

What is?

The stock market…

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.

And here’s a bit more from the CBO about tax cuts for the rich vs. the lower income brackets…

“Policies that temporarily increased the after-tax income of people who are relatively well off would probably have little effect on their spending because they generally would be able finance their consumption out of their income or assets without such a change,” CBO director Douglas Elmendorf testified to Congress on Feb. 23.

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.”

Meanwhile, John Boehner gives up even more ground in this fight and admits that only 3% of small businesses would be affected by not extending the tax cuts.

Long story short, extending tax cuts for the rich right now is not a smart idea. The government needs the revenue now more than ever and with the rick likely just holding on to it anyway, the stimulative effects for giving them more of their money back is probably worse than previously projected.

Moving on…