This is a post from a WSJ blog (http://blogs.wsj.com/wealth/2010/12/07/will-tax-freeze-for-wealthy-create-jobs) referening AARC’s research about spending trends for the affluent market.
December 7, 2010
By Robert Frank
One of the core arguments for extending the Bush tax cuts for the rich was that the wealthy create jobs. Extending their low rates, conservatives argued, would encourage them to hire.
“I think that extending all of the current tax rates, and making them permanent, will reduce the uncertainty in America, and help small businesses to create jobs again …†said U.S. House Republican leader John Boehner.
We’ll now get to see whether the theory works. With President Obama making a deal with Republicans to extend the cuts for everyone for two years, the wealthy will keep their marginal tax rate at 36%. Just as important, rates on dividends and capital gains will remain unchanged and the estate tax threshold got pushed to $5 million.
I remain skeptical that keeping rates low will result in an increase in hiring. When I ask wealthy business owners and entrepreneurs why they’re not hiring, they rarely mention taxes. They say consumer demand. And jobs.
Countless surveys recently show that the wealthy also remain bearish when it comes to personal spending. Again, the reason isn’t taxes. The main reasons are larger issues like unemployment, the deficit, Europe and the education system.
“This is a group that will say ‘show me’ before they start spending,†Ron Kurtz, president of the American Affluence Research Center, based in Alpharetta, Ga., told Henry Unger of the Atlanta Journal-Constitution. “It’s got to get better before they’re really going to spend … and that goes for creating jobs, as well.â€
According to Mr. Kurtz’ surveys, 41% of wealthy households (in top 10%) expect to spend less this year. He thinks their holiday spending will be flat or up 1%.
In other words, the wealthy aren’t likely to bankroll a recovery. They’re going to wait for one to start, then jump on board.
There are some economic benefits to the tax extension. Spending by the wealthy is one of the few forces keeping the consumer economy going, as the top 5% of Americans by income now account for 37% of consumer outlays. If their taxes had gone up, their current spending levels might have gone down.
So in the end, the extensions are more about doing no harm to the economy, rather than actually helping it. Not exactly the formula for a strong recovery.
Do you think the tax extensions for the wealthy will create jobs?