Richest Americans Will Save Tax Cuts Rather Than Spend It (Moody's)

For weeks and months the American public has been told time and time again by Republicans that letting the Bush era tax cuts for the wealthiest citizens lapse will only do additional harm to an economy that has been been struggling. In theory the richest Americans would spend the money or reinvest it in America.

But in a report appearing at Bloomberg.com there appears to be evidence that most of the money the rich save in tax cuts never channels back to the economy. Instead, as Moody's Analytics Inc has determined, the money from those tax cuts will be saved rather than spent.

The following appears at Bloomberg.com.

Tax cuts in 2001 and 2003 under President George W. Bush were followed by increases in the saving rate among the rich, according to data from Moody’s Analytics Inc. When taxes were raised under Bill Clinton, the saving rate fell.

The findings may weaken arguments by Republicans and some Democrats in Congress who say allowing the Bush-era tax cuts for the wealthiest Americans to lapse will prompt them to reduce their spending, harming the economy. President Barack Obama wants to extend the cuts for individuals earning less than $200,000 and couples earning less than $250,000 while ending them for those who earn more.

So, when Mitch McConnell and John Boehner and the rest of the Republican leadership in Congress go before the cameras and wag their fingers telling all who will listen that the extension of these tax cuts for the wealthy are necessary for economic recovery.....that may hardly the case.

More from Bloomberg

When the first Bush tax cuts were signed into law in June 2001, pushing the top rate down to 35 percent, the wealthy boosted savings. The saving rate climbed to 2.8 percent in the first quarter of 2002 from minus 2 percent in the second quarter of 2001. The increased savings coincided with a 1.1 percent decline in the S&P 500 index.

Second Round

After the second round of Bush tax cuts in May 2003, the rich also increased their saving, with the rate climbing to 7.6 percent in the first quarter of 2004 from 2.2 percent in the second quarter of 2003, the Moody’s data show.

The analysis found some similarities across income levels in the 2001 and 2003 data. The wealthy and the remaining 95 percent of Americans both saved more of their incomes after the Bush tax cuts. The saving rate is defined as personal savings as a percentage of after-tax income,

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