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Wednesday, November 26th, 2014


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Tax Cuts May Boost Saving, Not Spending

Cutting taxes may not stimulate spending for the top 5 percent.As the debate rages over whether allowing the 2001 and 2003 tax cuts – enacted under former president George W. Bush – to lapse, Bloomberg News has stepped in with an article that’s problematic for both Democrats and Republicans.

Rather than boosting spending and consumption, economists at Moody’s Analytics have found, the tax cuts increased savings rates among those earning more than $210,000. Moody’s focused on those households because they received the bulk of the tax cuts. When they went into effect, the savings rate among the rich shifted from negative 2 percent in the second quarter of 2001 to 2.8 percent in 2002.

After the second round of tax cuts in 2003, the savings rate for the top 5 percent of earners climbed to 7.6 percent.

In addition, higher taxes on the top bracket – enacted under Bill Clinton in 1993 – coincided with a decrease in the savings rate of nearly 2 percent.

There may be a more important factor for wealthy savers than tax rates, concluded Moody’s: the stock market. The researchers found a far greater correlation between savings rates and the S&P 500 index returns than they did with tax rates.

If the president wants to get the rich spending, then, perhaps the government should just start buying stocks.ADNFCR-3389-ID-19940322-ADNFCR

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