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

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

    This should put to rest the republican talking point about the top 1% or 2% generating jobs with the Bush tax cuts.

    <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.>

    That,s a real shocker.

    <The Moody’s economists examined saving rates by income groups back to 1989. Their study uses statistics from the Federal Reserve’s quarterly Flow of Funds report, which gauges the net worth of households, and the Fed’s triennial Survey of Consumer Finances, a measure of balance sheets, pensions and incomes of U.S. families.

    <When tax legislation was signed by Clinton in 1993 -- raising the top tax rate to 39.6 percent from 31 percent -- the saving rate fell from 12.1 percent in the second quarter to 9.5 percent in the first quarter of 1994. The Standard & Poor’s 500 Index rose 1.9 percent from July through September, after little change the previous three months.>

    Rich Americans Save Tax Cuts Instead of Spending, Moody's Says - Bloomberg
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    Re: Rich Americans Save Tax Cuts Instead of Spending, Moody's Says

    The argument seems a bit circular.

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

    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).
    Last edited by donsutherland1; 09-13-10 at 03:53 PM.

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


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

    As the old adage goes "you don't become rich by spending"

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

    darn that reality, once more

    Sen. Kerry flip-flops on tax cuts - NYPOST.com

    cuz if ya can't count on kerry...

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

    Quote Originally Posted by The Prof View Post
    darn that reality, once more

    Sen. Kerry flip-flops on tax cuts - NYPOST.com

    cuz if ya can't count on kerry...
    ...you can count on someone to troll an otherwise decent discussion.
    Last edited by danarhea; 09-13-10 at 05:51 PM.
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    Re: Rich Americans Save Tax Cuts Instead of Spending, Moody's Says

    senators bayh, lieberman, nelson and budget chair kent conrad, as well as the letter-writing campaigners in pelosi's place, are trolls

    fine by me

    hypotheticals and academics are important, they're almost as interesting as the opinions of posters in chatrooms, whether up here in the forums for the self respecting, or on those other pages where the porn is pushed

    meanwhile, who really cares what's going down in dc

    party on, just pretend

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

    Quote Originally Posted by The Prof View Post

    party on, progressively and proud!

    seeya at the polls
    Maybe not :-)
    The polls show Dems are pretty apathetic about voting in Nov.
    I'll be there tho!
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    Re: Rich Americans Save Tax Cuts Instead of Spending, Moody's Says

    Quote Originally Posted by RightinNYC View Post
    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.
    The haggardness of poverty is everywhere seen contrasted with the sleekness of wealth, the exhorted labor of some compensating for the idleness of others, wretched hovels by the side of stately colonnades, the rags of indigence blended with the ensigns of opulence; in a word, the most useless profusion in the midst of the most urgent wants.Jean-Baptiste Say

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