For the last two years, Democrats have blamed one class of people for the nation’s woes — the rich. Wall Street fat cats stole our money, big executives got bonuses, bankers and investors gambled too much on their choices, and CEOs won’t unlock capital just because they’re great big meanies. Barack Obama and his partners in Congress keep coming up with higher taxes and bigger penalties for the wealthy to punish them, but as the Associated Press belatedly discovers, that has an effect that has helped cripple the economy:
Wealthy Americans aren’t spending so freely anymore. And the rest of us are feeling the squeeze.
The question is whether the rich will cut back so much as to tip the economy back into recession — or if they will spend at least enough to sustain the recovery.
The answer may not be clear for months. But their cutbacks help explain why the rebound could be stalling. The economy grew at just a 2.4 percent rate in the April-June quarter, the government said Friday, much slower than the 3.7 percent rate for the first quarter.
Economists say overall consumer spending has slowed mainly because the richest 5 percent of Americans — those earning at least $207,000 — are buying less. They account for about 14 percent of total spending. These shoppers have retrenched as their investment values have sunk and home values have languished.
Keep in mind that everyone is buying less. Thanks to high unemployment rates, no one feels very sanguine about spending lots of money unless they absolutely need to spend it. The savings rate jumped to 6.2% in the second quarter, and that’s not just because the top 5% of the consumers in this nation have begun clipping coupons.
To the extent that those earning above $207K may have cut back their spending, it should come as no surprise. A number of them may be overextended on their mortgages just as more middle-class families have become. But increasingly, it’s become clear that the Obama administration and Democrats see them as piggy banks for funding their expansive and expensive social-engineering programs. Democrats have shifted gears somewhat to keep the middle-class tax cuts from expiring, but plan to allow the higher-end tax rates to rise again at the end of the year. The administration has targeted them for other potential tax hikes, such as increasing the cap on Social Security taxes, as well.
They’re under siege. What do people under siege do? They hunker down. And when they hunker down, they stop spending their disposable income and start sheltering it instead. That affects people in the primary and secondary consumer markets, costing jobs and closing businesses, and accelerates economic decline.
This is why it’s generally considered an idiotic idea to raise taxes in the middle of a recession, perhaps especially on the pool of people who have the most disposable income to spend. Oddly enough, while we had deficits after these tax cuts, they had closed to less than $200 billion a year in FY2007, before Democrats gained control of Congress, started spending like mad, and increased the annual budget 38% in just three years. The tax cuts aren’t the real problem anyway, but if Congress decides to kill them now, it’s going to make our existing problems a lot worse.
Update: King Banaian wonders where the AP got their data; according to his, upper-income spending has increased, not decreased.