The debt hawks are to economics as the creationists are to biology.
Cynical populist politicians try to gather votes by playing Robin Hood. They think taxing the rich will make them popular with poor, and sadly, they are right. As the poor don’t realize, but readers of this blog have learned, TAXING THE RICH actually hurts everyone, especially the poor. Read the following article By JEANNINE AVERSA, AP Economics Writer, dated Aug 1, 2010
“WASHINGTON – Wealthy Americans aren’t spending so freely anymore. And the rest of us are feeling the squeeze. [...] Economists say overall consumer spending has slowed mainly because the richest 5 percent of Americans — those earning at least $207,000 — are buying less. They account for about 14 percent of total spending.
“President Barack Obama wants to allow the top (tax)rates to increase next year for individuals making more than $200,000 and couples making more than $250,000. The wealthy may be keeping some money on the sidelines due to uncertainty over whether or not they will soon face higher taxes. [...] Think of the wealthy as the main engine of the economy: When they buy more, the economy hums. When they cut back, it sputters. The rest of us mainly go along for the ride.
“Earlier this year, gains in stock portfolios had boosted household wealth. And the rich responded by spending freely. That raised hopes the recovery would strengthen. [...] The affluent went back to tightening their belts in June after months of vigorous showing. Data from MasterCard Advisors’ SpendingPulse showed luxury spending fell in June for the first time since November. [...] “It isn’t a good omen for the consumer recovery, which cannot exist without the luxury spender,” said Mike Niemira, chief economist at the International Council of Shopping Centers.
“[...] And it helps explain why economists expect the rebound to lose momentum in the second half of the year. Especially if the rich don’t resume bigger spending. “They are the bellwether for the economy,” says Mark Zandi, chief economist at Moody’s Analytics. “The fact that they turned more cautious is why the recovery is losing momentum. If they panic again, that would be the fodder for a double-dip recession.”
“That’s because whether they’re saving or spending, the wealthy deliver an outsize impact on the economy. What’s not clear is whether they will remain too nervous to spend freely again for many months. That’s what happened when the recession hit in December 2007 and then when the financial crisis ignited in September 2008.
“As their stock holdings and home values sank, the affluent lost wealth. Their jobs weren’t safe, either. Bankers, lawyers, accountants and mortgage brokers were among those getting pink-slipped. Those who did have jobs feared losing them. Neither group spent much. Instead, Americans’ savings rate spiked. And most of the increase came from the richest 5 percent, according to research by Moody’s Analytics. In the first quarter of this year, stocks rebounded, layoffs slowed and the rich were spending again. But now the rich are building up their savings and splurging less on discretionary items. That’s starting to show up in softer sales at upscale retailers, such as Neiman Marcus and Saks Inc.
“’The affluent — as their wealth goes down — they’ll become more and more conservative,’ predicts David Levy, chairman of the Jerome Levy Forecasting Center.”
So, if you feel raising taxes on the rich is harmless, think again.
Rodger Malcolm Mitchell
No nation can tax itself into prosperity