Rich Americans Save Tax Cuts Instead of Spending, Moody's Says - Bloomberg.
Well, from time to time, we hear that Americans aren't saving enough, and sometimes columnists ask for suggestions of how we might increase America's savings rate.
Moody's has provided the answer: cut federal income taxes on the highest income people, and they will save a significant portion of it. (The question arose because some say that in order to facilitate job creation, we ought to avoid increasing federal income taxes on the portion of taxable income over $250,000 per year.)
If the goal is to produce savings at the median, or at the 25th or 75th percentiles, or at the 10th or 90th percentiles, reducing taxes on the highest-income 2% or so is not going to serve the purpose. But it will satisfy the "increase America's saving rate" goal.
Before we went into this recent "bust" portion of our 18-year boom-bust cycle, a shocking proportion of Americans lacked sufficient savings to provide even a poverty-line existence for their families for as short a period as 3 months. (Edward Wolff of NYU wrote the study on this.) Most of us live paycheck to paycheck.
The notion of saving for a "rainy day," or even of saving to buy one's next car for cash, seems quaint and of-another-era, with so many of us paying more than 40% of our income for housing. (Yet we don't complain about owing our soul to the company store. Now it is the FIRE sector we owe.) And look at the measures we've used to substitute for people's inability to save a 20% down payment on a starter home!
But the best-off among us -- both those who have large amounts of wealth and many of those who receive high wages or high profits on their "labor" (even if their labor consists of reaping that which other people sowed, they do regard it as labor, and sometimes the IRS does, too -- unless they run hedge funds, in which case it gets treated just as if they'd actually invested their own capital in a way a corporation could use to enhance its operations!) -- can and do save and invest. And clearly this is an aspect of the wedge driven through society which Henry George described 130 years ago, driving some up and the vast majority down.
The wealthiest among us own, and take opportunities increase their holdings of, the corporations -- public and private -- which hold our best land (urban, oil-laden, etc.) and our non-renewable and/or otherwise finite natural resources. (See "stock ownership" in the tag cloud at left for the data.) We praise them as if they are somehow self-made, and let them parade about as such, and we gratefully accept their charity -- tulips and swimming holes on Park Avenue -- as if it made up for what they and their ancestors stole from us and ours, and what their children will reap from the labor of our children. We don't see the structures by which they do it -- we're so used to them that they are, like the air we breathe, invisible to us. But 120 years ago, most Americans did understand them. (Explore the free NYT archives, 1880 to 1900, for the name of Henry George, and do some reading. I suspect even the American history and American Studies majors will be surprised.)