Rich Americans Save Tax Cut Instead Of Spending It
(Bloomberg) Hand the wealthiest Americans a tax cut and history suggests they will save the money rather than spend it.
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.
"I would tend to wonder how much the tax cut actually influences spending behavior," said Chris Cornell, an economist who mined government reports back to 1989 for West Chester, Pa.-based Moody's Analytics. "Spending by the top 5% of households seems much more closely tied to business-cycle issues than it does to tax-cut issues."
The Moody's research covering couples earning more than $210,000 found that spending by the wealthy is more likely to be influenced by the ups and downs of the stock market than changes in income-tax rates.
Stock-market performance is the "primary factor that is driving the savings of the top 5% of households," said Mustafa Akcay, economist and co-researcher of the savings data.
When tax legislation was signed by Clinton in 1993-raising the top tax rate to 39.6% from 31%-the saving rate fell from 12.1% in the second quarter to 9.5% in the first quarter of 1994. The Standard & Poor's 500 Index rose 1.9% from July through September, after little change the previous three months.
When the first Bush tax cuts were signed into law in June 2001, pushing the top rate down to 35%, the wealthy boosted savings. The saving rate climbed to 2.8% in the first quarter of 2002 from minus 2% in the second quarter of 2001. The increased savings coincided with a 1.1% decline in the S&P 500 index.
Advisor ETF Users Most Loyal To Vanguard Brand
Investment advisors are using more exchange-traded funds in their client portfolios and, evidently, they're more apt to use Vanguard's ETFs than its rivals', according to a Cogent Research report.
Cogent's survey of 1,560 investment advisors found that Vanguard was tops in advisor loyalty among ETF providers, surpassing the former leader, iShares. And increased loyalty translates into greater use of Vanguard ETFs--the average amount of assets Vanguard captured among advisors it serves zoomed from $2.3 million per user last year to $5.5 million in 2010. That still trails iShares' recent total of $5.7 million, which was up only slightly from $5.3 million last year.