The nation’s highest income groups predictably did better during the recession and socked away their money, new government figures show, but wealthier Americans’ newfound penchant for savings is already driving Democratic calls to raise taxes on them this fall.
Figures recently published by the Commerce Department show the mostly upper-income households that hold stocks earned $169 billion more in dividends since 2007 than previously estimated. Much of that money was stowed away in savings, helping drive the personal savings rate to 6.25 percent earlier this year — the highest level in decades.
“This detail will probably play an important role in the current debate about the extension of the Bush tax cuts for households earning more than $250,000 a year,” said Harm Bandholz, an economist at Unicredit Markets.
The Obama administration — despite its calls for people to save — has seized on the number, with Treasury Secretary Timothy F. Geithner stressing that extending Bush-era tax cuts for the top 2 percent of earners would not be a good way to provide stimulus to the economy.
“The top 2 percent are the least likely to spend those tax cuts, certainly not in comparison to the 98 percent of Americans who make less than $250,000 per year,” he said. “While they would surely welcome extended tax cuts, its not likely to change their spending habits.”
His opponents in the Bush tax-cut debate were quick to seize on the economic maxim that, all else being equal, taxing a thing results in less of that thing, including savings.
Martin Regalia, chief economist for the U.S. Chamber of Commerce, said on ABC’s “This Week” that private-sector investment remains slow because “I think our tax laws and our other regulatory structure in Washington don’t foster that. We tax savings multiple times.”
“And when you don’t have the kind of laws and the kind of tax structure that facilitate and encourage investment, you get a lot less of it,” he said Sunday.
President Obama wants to let the tax cuts for top earners expire, reverting to levels set during the Clinton administration, while continuing the tax cuts for everyone else. He also would allow Mr. Bush’s lower tax rates on dividends and capital gains to rise from 15 percent to 20 percent. The new figures add fuel to arguments that wealthier people could well afford to pay higher taxes, as they had no need to spend their stock-market gains during the recession.
Lower-income groups for the most part did not benefit from the gusher of dividends earned in the stock market, much of it last year when the market rebounded strongly after collapsing during the 2008 financial crisis.
“It is a measure of the rising inequality of income and wealth in the United States,” Mr. Bandholz said, noting that lower-income people almost certainly were not able to sock away as much money for economic emergencies as the so-called investor class.
While the development suggests the wealthier could well afford to pay higher taxes, the Obama administration also has sought to encourage savings and investments to promote a healthier, more balanced economy that is less reliant on “bubbles” and debt. During the recession, it was primarily the wealthier who had the means to save significantly more. If their money is largely taxed away, investment capital will be in shorter supply.
Sen. Bob Corker, Tennessee Republican and member of the Senate Banking, Housing and Urban Affairs Committee, said the government had “created an air of unpredictability” that was discouraging even the productive investment of the savings and capital that do exist.
“Let’s leave tax policy as it is,” he said on “This Week.” “The best thing we can do in Washington is really just to calm down, to quit making sweeping changes.”
Mr. Geithner said Congress, as it decides what to do with the tax cuts, must take into account the contrasting fortunes of diverse groups of Americans.