Wednesday, July 28, 2010

Tax Cuts for "Rich" Not "Wasted"

This post's headline is not what you've heard.

What you've heard is that when rich people get tax cuts, they're least likely to spend the money. So that money doesn't get "multiplied" through the economy as other people re-spend it, and so it doesn't do all the job-creating and recession-ending stuff we want it to. Giving money to others, especially the mighty middle class, is more effective. So if taxes go down, they should only go down for the middle and below. Of course, they can't go down for the bottom, so that means giving them more benefits, like longer unemployment benefits.

Well, that's all fine. But false.

Bob McTeer, former Fed regional prez, notes at Forbes that the flaw in the thought is that savings is not the same as hoarding. The rich don't put their tax cuts under the mattress but in banks or investments, from which point it becomes invested in competitive areas of the economy as capital that drives productivity and ultimately more jobs and wealth. In fact, it is more likely that money will be invested if it starts in the hands of the better off than if it starts in the hands of the worse off.

We figure this applies outside a deflationary environment, and we don't seem to have that presently.

So what time is it? Time to stop listening to all the not-so-subtle, self-serving, class-warfare rhetoric that is shaping up to be the big political issue of the season.

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