Moodys: Rich SAVE Tax Cuts Instead of Spending

Good. They should 'save' the money. It goes to investments and is productive capital. What, you want America to consume even more?

But I thought if we give the rich tax cuts they will spend it on creating jobs? Savinf money does not create a single job.

Love it the solution to the problem is to encourage the bad behaviors that got us into this mess

It's been pretty accepted that a cause of the current crisis was people not saving enough and spending too much, so the solution seems to be to punish the very people who are saving and reward the people who spend too much.

Same thing about interest rates. Greenspan screwed us up by keeping interest rates too low for too long, so now the answer apparently is Zero interest rates for the indefinite future.

Ditto on imprudent bank lending, with liar loans and low or no downpayments, so now the answer is
no down payemnt loans on the tax payers dime...
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And no comment can adequately deal iwth the irony of Moody's making any statments at all on housing , taxes or the economy.

I agree. When the rich are given more money, they save more. That doesn't matter. This is about the middle class and their need to spend every cent they make. Give them a tax cut and they will spend it, no questions asked. Why do you think Wal-Mart offers specials to cash tax refund checks in store? To buy groceries? The scale effect of all those middle class spenders is what helps the economy, not a few rich guys that save a couple extra bucks.

There's something else totally missing from Moody's brilliant analysis. Lately the foreigners have stopped buying treasury debt. It's only local money that has been funding treasuries. The guys who save instead of spend...

Savings, go into investments and create jobs. Economics 101 president.

Forcing the economy to spend more now, is like forcing an athlete who has the flu into consuming a 5000 calorie a day diet. Not a very good idea...

Rich people can afford to spend more.

Why not confiscate 90% of their savings? Many will still be rich?

Brilliant. The demogogue of economic liberty doesn't know the difference between savings and investment. The government's foot on your neck must be cutting off the air to your brain again Julia.

Where does the rich but their 'savings' malthus? In cash under their mattresses? No, in stocks , bond, real-estate known as investments. Another liberal brain surgeon.

For Julia:

Differences Between Saving and Investing
Q: What are the differences between saving and investing?

A: Your "savings" are usually put into the safest places or products that allow you access to your money at any time. Examples include savings accounts, checking accounts, and certificates of deposit. At some banks and savings and loan associations your deposits may be insured by the Federal Deposit Insurance Corporation (FDIC). But there's a tradeoff for the security and ready availability of these savings methods: your money is paid a low wage as it works for you.

When you "invest," you have a greater chance of losing your money than when you "save." Unlike FDIC-insured deposits, the money you invest in securities, mutual funds, and other similar investments is not federally insured. You could lose your "principal," which is the amount you've invested. That’s true even if you purchase your investments through a bank. But when you invest, you also have the opportunity to earn more money than when you save. There is a tradeoff between the higher risk of investing and the potential for greater rewards.

http://www.sec.gov/rss/ask_investor_ed/saveinvest.htm

The two are different. Unfortunately we have an administration who is anti-private investment. Health care raised the tax rate on dividends. The government has created a hostile regulatory atmosphere(ignoring the financial arena which was broken). They've said they will raise taxes. The result is an atmosphere that favors captial preservation over investment.

When people save, to preserve capital it's for a reason. Normally we have mechanisms to deal with this. Banks act as an intermediary and the interest rate mechanism acts as a bridge/allocator.

Right now , due to gov't interference, nothing is working.

"And no comment can adequately deal iwth the irony of Moody's making any statments at all on housing , taxes or the economy."

It doesn't happen very often, but here is a post from Riversider that I can agree with

"Your "savings" are usually put into the safest places or products that allow you access to your money at any time. Examples include savings accounts, checking accounts, and certificates of deposit." We are talking about the 'rich' not the middle class. The 'rich' invest. That is why they are wealthy.

Very good point. It may not be what the non-rich envision, but most rich people are tight wads. That's how they became rich. Many if not all live very conservative lives. The image of the Rolex's , Porsche's and yachts is not the norm and is more a function of Paris Hilton, Cribs and the visible life styles of people who have come into money without truly earning it.

@President:

No offense, you are completely wrong.

First of all, the 'rich' are generally the most likely people to put their money in investments. Generally, the rich do not just 'save' by putting money in the bank and collecting an almost non-existing interest.

However, let's stay on point, even if the 'rich' do simply put their money into a saving's account and do nothing with it, the BANK will utilize the money by investing your savings. Seriously, this IS economics 101, have you ever asked yourself, why the hell the bank is paying you interest?

I have asked myself why the bank isn't paying me interest. Have you?

"However, let's stay on point, even if the 'rich' do simply put their money into a saving's account and do nothing with it, the BANK will utilize the money by investing your savings. Seriously, this IS economics 101, have you ever asked yourself, why the hell the bank is paying you interest?"
Many on the left don't understand the most basic concepts of economics. Like are illustrious president(and the real one). That is why we have 15 $trillion debt, it's frightening.

So the banks will pull us out of this based on investing the savings deposits of wealthy Americans given tax breaks. Is that your answer Julia? I'm not sure that would even work with the Tea Party.

I too have asked myself why my bank is paying me interest. WHy are they paying me 0.2% interest that is toilet paper?

The lower income brackets are the least likely to invest in anything. I do agree they are likely to consume more, but there are several problems here.
1) smacks of redistribution
2) over consumption and underinvestment are at the heart of the crisis
3) Government is a terrible allocator of investment and is more likely than private individuals to back dumb
ideas and not face any consequences for doing so

So the banks will pull us out of this based on investing the savings deposits of wealthy Americans given tax breaks.

No, this time IS different. The banks are using the NIM and just investing in longer dated gov't instruments and using the profits to beef up their balance sheet. It's not being lent. And, another reason why the long end of the treasury curve is flattening, while the dollar is tanking.

There are two mechanisms, exchange rates and interest rates, by keeping exchange rates low with massive debt we just wind up depreciating the dollar.

No, malthus. The government confiscates private sector resources and then 'invests' so inefficiently. As long as they continue, the country will continue to slide into the abyss. 50 years and trillions of dollars of waste and the number of poor continue to increase. The so called 'rich' have nothing to do with this problem. The govt can steal all the wealth of the top 10% and the poor will still be poor and the govt debt will still bankrupt the country.

both the private and public sector can make investment mistakes, but when private money scres up it loses the investment. government just raises more taxes and repeats the process.

Hey Julia, how about some Grammer 101. Obama is OUR president not ARE president.

When facts and figures fail, fall back on slogans and slander.

"both the private and public sector can make investment mistakes, but when private money scres up it loses the investment. government just raises more taxes and repeats the process."

I like it when you get sarcastic Riversider. You were being sarcastic right?

ynotie29
6 minutes ago
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"Hey Julia, how about some Grammer 101. Obama is OUR president not ARE president." Thanks for correcting the grammar error. It was just an error not a philosophical error.(as malthus and president are making) And by the way ynotie26, it is GRAMMAR not GRAMMER.....

while i do agree with a lot of what the "right" crowd has said, what I dont understand is how is Obama different from any of the previous presidents? from 1980 through 2008 we had 20 years of republican rule and 8 years of democratic rule. Most of the problems we are having are attributed to what happened prior to Obama. So while I am not defending Obama, I would like to know why the right thinks they have the answer, when it is obvious that their policies have failed.

I am not the right. It's the extreme libertarian philosophy that works. Get the government out of our lives and let people decide for themselves, The federal government should protect against the criminals(foreign and domestic). Let the states do most everything else.(schools,roads, fire etc) Big clunky oppressive gov't doesn't work, it destroys.

There is zero reason, JuliaG or anyone else, why you cannot use the tax code to encourage the middle class and the poor to save and thus achieve the exact same goal.

In singapore, the essentially have mandatory 401ks with a governmnet match. This is a PROGRESSIVE forced savings plan that creates more domestic investors, but the match helps the poor more than the middle class, and the middle class more than the rich.

In the US, a voluntary version of the same would be refundable tax credits matching dollar for dollar IRA contributions, up to the limit. You can even make the government match go straight to the IRA. The max - $5,000 a year - would be 10% of the average wage-earners income, but 50% for a single person at the poverty level, but a pitance for a fortune 500 CEO or MD at an i-bank.

In EVERY conceivable tax jurisdiction, the rich save more than the poor or middle class. Be it Sweden, Hong Kong or the US. But the US overall savings rate is piss poor because here ONLY the rich can afford to save.

Its really just ideaology that makes people think that taxes should only ecourage the righ to save rather than those less fortunate than them.

I know Julia, caught it as soon as I hit reply.

It must be nice atop your philisophical high horse, with your surprisingly strong opionions on income tax from some one that doesn't work.

"It must be nice atop your philisophical high horse, with your surprisingly strong opionions on income tax from some one that doesn't work.' Assumptions, all assumptions.

Maybe mistaken identity, but not assumptions.
Did I not read a post of yours the other day where you called youreslf a SAHM (stay at home mom)?
Maybe it was lucillebluth...but you two are a carbon copies anyway.

I like it when you get sarcastic Riversider

let's ignore G.M. & the banks.
It's not supposed to work this way...

"Did I not read a post of yours the other day where you called youreslf a SAHM (stay at home mom)? " NO!

It's fun when people make assumptions about you based on nothing, isn't it ugly one?

"let's ignore G.M. & the banks.
It's not supposed to work this way..."

This is the way it does work though and much as you want to ignore it, you can't if you want to have a realistic and honest debate over policy.

Any bets on whether g.m. fails again and how long it takes? Chyrsler has already double dipped.

This is why the U.S.S.R. failed.
Zombie enterprises that didn't know they were dead.

In the case of G.M. & Chrysler it would have been far cheaper(I am not advocating this) to write the workers a big fat severance check. It's fairly obvious that G.M. will fail , but not before it outsources domestic jobs to those Buick plants in China.

hmmn....is that an answer?

if they had folded you would be screaming about the unemployment benefits.

enjoy yourself.

scream away.

"This is why the U.S.S.R. failed.
Zombie enterprises that didn't know they were dead."

If you are going to change the subject at least go to something that is not outright laughable...

"That is why we have 15 $trillion debt, it's frightening."

Really? We have that huge deficit because "obama and the left do not understand economics?"
C'mon Large Julia, you know better than that.

"Saving money does not create a single job."

This is true only if the money is cash under your mattress.

I find it sad that whenever you have an opinion on any issue in the States, you are immediately labeled as either the Right or the Left.

Just because you think Obama's tax direction doesn't make sense doesn't mean you are a Bible reading, gun hugging, gay hating Republican (which in and of itself is a stereotype).

@Jason:

The problem with our lack of savings is due to the American society encouraging overconsumption. While the rest of the world consumes a portion of what they make today, the middle class consumes what they make tomorrow. There is not much that can be done without teaching a new generation how to be fiscally responsible. If you actually think about it, it's funny how saving money is actually deified in the States, as evident by this thread.

Pres, you are clueless. You consistently post embarrassing things. What do you think happens to that savings? In a capitalist system, the savings gets invested into the economy, unless as UWS says it gets stuffed in a mattress. The savings goes through a bank or other investment vehicle and becomes capital for business or other financing.

Please try to know even a little before you post, for your own good.

Help me out here.

I put 100k in my savings account in citibank. Now what happens?

"I put 100k in my savings account in citibank. Now what happens?" god help us!!!! This is your fellow American.

Ok ugly one. Why don't you tell us what happens next?

Lic clearly doesn't have a clue.

Better yet Julia, why don't you explain how the Bush tax cuts have been a success for the economy up to now...and how extending them will continue this economic prosperity.
Cheers, to good times!

I really don't have time to give you an economics lesson. I couldn't stomach bush or his dad, both big government guys. bush loved government... I hate government

Perfect. What a surprise.

"In a capitalist system, the savings gets invested into the economy, unless as UWS says it gets stuffed in a mattress. The savings goes through a bank or other investment vehicle and becomes capital for business or other financing."

Have you even read a newspaper in the past three years? Holy crap. Why don't you try answering the question about citibank? You might learn something.

Here is a start: http://tinyurl.com/3xp8q3d

"'Small businesses, which are more dependent on bank lending to meet their financing needs, are still experiencing problems accessing credit due to the continued tight lending standards and banks and have been unable to increase hiring,' the congressional Joint Economic Committee wrote in a report released Monday."

Better yet ynotie29,why don't you explain how an obama tax increase will be a success for the economy in the future...and how raising taxes will continue to help a fragile economy?
Cheers, to good times!

malthus thinks that government spending through borrowing and redistribution of income will cause increased bank lending. And he thinks he can teach people economics?

well, julia ugly one.

first of all, if President Obama managed to find the cure for cancer you would find a way to belittle that accomplishment because you hate him so much.

raising taxes on the wealthiest 2-3% of americans will not hurt the economy and it will certainly lower the deficit---which is supposedly one of your goals.

"first of all, if President Obama managed to find the cure for cancer you would find a way to belittle that accomplishment because you hate him so much." obama hasn't done anything but destroy and demonize. He's the least qualified of anyone in any room he walks into. The real disappointment of obama is how small he is. A petty little man with no achievements. The nobel prize peace win of obama personifies him well. Given without earning, that's his motto.

so, you agree that you hate and despise him?

"so, you agree that you hate and despise him?"

I hate and despise his philosophy..

The (Impeached) President:

Barron's reported 3-4 issues ago that the savings rate in the 1st 1/4 of 2010 among Americans whose
income is in the top 5% was -7%.

Of course savings rates among wealthy Americans went down when their taxes went up under Monica
Lewinsky's spiritual adviser BECAUSE THEY HAD LESS NET INCOME TO SAVE.

@LICC: I wonder how many times on this board when you are unable to answer a question or counter an argument you start a reply with "Steve thinks" or "malthus thinks that...". Its pretty clear that you can't reason or carry on any coherent argument when you have to make assertions that I think something that I never said.

Next time when you can't actually come up with a counterargument just do us all a favor and leave the thread. In the mean time, call a financial advisor for a free consultation about the difference between saving and investing.

"raising taxes on the wealthiest 2-3% of americans will not hurt the economy and it will certainly lower the deficit---which is supposedly one of your goals."

The country is bankrupt. It's all a smoke screen. Organized criminals dividing up and allocating the the stolen tax loot cc.

what is a smoke screen? your slogans? your rhetoric?

And I acknowledge that my motives in taking on extra work are partly mercenary. I don’t want to move to a bigger house or buy that Ferrari, but I hope to put some money aside for my three children. They will never lead lives of leisure, but I hope they won’t have to struggle to find down payments to buy their own homes or to send their kids to college.

Suppose that some editor offered me $1,000 to write an article. If there were no taxes of any kind, this $1,000 of income would translate into $1,000 in extra saving. If I invested it in the stock of a company that earned, say, 8 percent a year on its capital, then 30 years from now, when I pass on, my children would inherit about $10,000. That is simply the miracle of compounding.

Now let’s put taxes into the calculus. First, assuming that the Bush tax cuts expire, I would pay 39.6 percent in federal income taxes on that extra income. Beyond that, the phaseout of deductions adds 1.2 percentage points to my effective marginal tax rate. I also pay Medicare tax, which the recent health care bill is raising to 3.8 percent, starting in 2013. And in Massachusetts, I pay 5.3 percent in state income taxes, part of which I get back as a federal deduction. Putting all those taxes together, that $1,000 of pretax income becomes only $523 of saving.

And that saving no longer earns 8 percent. First, the corporation in which I have invested pays a 35 percent corporate tax on its earnings. So I get only 5.2 percent in dividends and capital gains. Then, on that income, I pay taxes at the federal and state level. As a result, I earn about 4 percent after taxes, and the $523 in saving grows to $1,700 after 30 years.

Then, when my children inherit the money, the estate tax will kick in. The marginal estate tax rate is scheduled to go as high as 55 percent next year, but Congress may reduce it a bit. Most likely, when that $1,700 enters my estate, my kids will get, at most, $1,000 of it.

HERE’S the bottom line: Without any taxes, accepting that editor’s assignment would have yielded my children an extra $10,000. With taxes, it yields only $1,000. In effect, once the entire tax system is taken into account, my family’s marginal tax rate is about 90 percent. Is it any wonder that I turn down most of the money-making opportunities I am offered?

By contrast, without the tax increases advocated by the Obama administration, the numbers would look quite different. I would face a lower income tax rate, a lower Medicare tax rate, and no deduction phaseout or estate tax. Taking that writing assignment would yield my kids about $2,000. I would have twice the incentive to keep working.

Maybe you are looking forward to a particular actor’s next movie or a particular novelist’s next book. Perhaps you wish that your favorite singer would have a concert near where you live. Or, someday, you may need treatment from a highly trained surgeon, or your child may need braces from the local orthodontist. Like me, these individuals respond to incentives. (Indeed, some studies report that high-income taxpayers are particularly responsive to taxes.) As they face higher tax rates, their services will be in shorter supply.

Reasonable people can disagree about whether and how much the government should redistribute income. And, to be sure, the looming budget deficits require hard choices about spending and taxes. But don’t let anyone fool you into thinking that when the government taxes the rich, only the rich bear the burden.

http://www.nytimes.com/2010/10/10/business/economy/10view.html

hey pres--appreciate you pointing out the obvious--amazing there are some on this who believe in trickle down--disavowed by most of those who architected and implemented the concept

it's basically fact that the rich simply do not adjust spending based on the incremental change in their wealth based on tax rate changes--to claim otherwise is moronic

by definition our working poor and cash-strapped middle class spend all they have on necessities, and often do without consumer goods considered necessities by many---so obviously any increase in disposable income they experience translates directly into increased consumption and attendant econmic growth

and we arent here in this shitty economic circumstance as a result of spending excesses by our working poor and cash-strapped middle class---what a f'ing joke

remember roughly 40% of current deficit directly attributable to bush tax cuts and wars in iraq and afghanistan

dont go near preaching re deficits with me if you dont get that

tea party a bunch of complete imbecile drones for the likes of fox and the koch's and others

free speech for corps allows for the secret ownership of our politics by wealthy and powerful

stop being drones

bet youre all against the "death tax" tho you have no hope of ever having an estate even close in size to being taxable

Wbottom's progressive answer- strangle the life out of business with high taxes for more government control over people's lives, and let terrorists run wild with no military action against it.

Consumption in the United States is already at a very high rate. C+I+G. If consumption is at 70% maybe 71% now I hear, then raising it knowing full well that government is spending as well means less investment. Why would anyone want to cut investment in the united states? How stupid. Investment is what funds the future. All you've accomplished is redistribution at the expense of funding our economy.
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It turns out the United States has a sweet tooth for consumption. In the US, private consumption spending is 70% of GDP. "Old Europe" countries France and Germany come in at 57%. Brazil's is 61%, India's 65%. And China? 35%. Only Greece, at 71%, is in the US's league.
http://blogs.hbr.org/hbr/meyer-kirby/2010/09/does-the-us-really-need-more-c.html

And more from Mayer...

A democracy cannot exist as a permanent form of government. It can only exist until the majority discovers it can vote itself largess out of the public treasury. After that, the majority always votes for the candidate promising the most benefits....

Ah LICC, if only government had been there controlling the lives of chem industry executives (whose estates are subject to the death tax, as opposed to yours) who made LIC into a toxic mess--a toxic mess in which you live

only strangling noisses coming from the poisoned--chem industy's fine, exec's are busy working on their tax shelters

you're droning on--well-tooled by fox and the koch boys---

kinda the same mentality that led you to "invest" in LIC---investing...you know, like the rich do

Its like reading from Democratic talking points, only someone dropped the cards first and mixed them up..

your "investment" in LIC hardly warrants a dem talking point

it is nonetheless amusing in the face of what you espouse--really though, a good repub would say that anyone dumb enough to buy on top of a toxic dump, whether dump exists due to absent gov't regulation, where existence of said dump is known by all, deserves to be stuck

as in stuck in the sludge

and thx for looking out for my estate, lemmingdrone