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.
“We live in one of the richest economies in the world. But one in eight Americans is on food stamps today,” he said.
Because of low tax rates and numerous tax loopholes available to wealthier Americans, he said, “the most affluent 400 earners in 2007 — who earned an average of more than $340 million each that year — paid only 17 percent of their income in tax, a lower rate than many middle-class families.”
Labor unions and other liberal groups that comprise the core of Democratic voters have long pushed for higher taxes on the wealthier, and have largely met with success over the years.
Because of their efforts, and despite fierce Republican resistance, the top 60 percent of earners pay nearly 100 percent of U.S. income taxes today, while the bottom 40 percent of earners pay almost none.
But it is not just liberals who are irked about the seemingly inexorable growth in income of the wealthier. Conservative “tea-party” activist and author Jerome Corsi is just as riled as the AFL-CIO about the growing inequality of incomes in the United States.
“The middle class is being systematically wiped out of existence in America,” he said. Mr. Corsi, who is also a senior managing director at Gilford Securities, authored the book “America for Sale: Fighting the New World Order, Surviving a Global Depression, and Preserving USA Sovereignty.”
Mr. Corsi notes that 83 percent of all U.S. stocks are in the hands of 1 percent of the people, 61 percent of Americans always or usually live paycheck to paycheck, 68 percent of the income growth between 2001 and 2007 went to the top 1 percent of all Americans, and 38 percent of Americans say that they don’t contribute anything to retirement savings.
“The current high rate of unemployment and the shrinking of the middle class are not the result of a current recession,” he said. “This is what globalism looks like.”
Wealthier people are able to escape the economic pressures that prompt businesses to move production of goods overseas because they have high degrees of education and skills.
It is the middle-income workers with less education and skills who are increasingly competing with workers elsewhere in the world who have the same skills but earn less than $1 an hour, he said.