Bloomberg News, which only hours ago was assuring us that "wealthy Americans" were going to spend their tax cuts on BMW convertibles, now frets, in a separate story, "Rich Americans Save Tax Cuts Instead of Spending, Moody's Says."
Well, which is it? It all seems aimed at preventing the extension of the Bush tax cuts. As the second article helpfully explains, "The findings may weaken arguments by Republicans and some Democrats in Congress who say allowing the Bush-era tax cuts for the wealthiest Americans to lapse will prompt them to reduce their spending, harming the economy."
If the concern is that the "rich" will save their tax cut rather than spend it, there are plenty of creative solutions. Politicians could, if they wanted to, for example, deliver the tax cuts to Americans above a certain income level in the form of Neiman Marcus gift cards. But one doesn't hear much about such ideas, perhaps because what really seems to bother most of those making this saving/spending argument is not so much that the rich might save their money rather than spend it, but that the decision on what to do with the money might be up to the rich themselves rather some economist or politician in Washington.
As we have said before, money that is "saved" rather than "spent" doesn't just sit around. It gets invested in corporate stocks and bonds or in venture capital funds or in private equity funds or real estate partnerships that build businesses that create employment and growth. It gets deposited in banks that make loans to businesses and homeowners. It is used to purchase government bonds that fund government spending.
To my ears this whole debate over whether tax cuts for the "rich" are going to be "saved" or "spent," sidesteps the real issue, which is not whether the money is saved or spent, but who makes the decision on allocating the capital, the individuals whose money it is, or the politicians in Washington who want to take it away. It's one thing to levy taxes at some minimum level necessary to fund the government's operations; it's another to take money away from people because the government is afraid that if it allows people to keep the money they might save it rather than spend it.
