Since the start of the 2008 campaign, wealthy Americans have been subjected to an onslaught of stick-it-to-the-rich rhetoric from leading Democrats.
The wealthiest 5 percent of Americans — households earning at least $207,000 per year — have been told time and again to expect higher taxes so the left can expand its redistributive agenda without cutting back on spending.
Yet the ruling class still expects highly productive citizens to go out and spend and invest big bucks, create jobs and reduce crushing unemployment. As with the promise of big tax hikes, Democrats insist the “rich” can afford it.
But the rich don’t stay rich by ignoring the economic and political environments in which they exist. In fact, people of all means will take steps to protect their assets when confronted with threats to their standard of living.
So, facing the likelihood of steep new expenses in the years ahead, wealthy Americans are being more cautious than ever about their spending. And — here’s another shocker — it’s having serious consequences for the economy.
“They are the bellwether for the economy,” says Mark Zandi, chief economist at Moody’s Analytics. “The fact that they turned more cautious is why the recovery is losing momentum. If they panic again, that would be the fodder for a double-dip recession.”
That’s because the richest 5 percent of Americans account for 14 percent of total spending. Many of these people have already dealt with income reductions, investment losses and declines in their home values. But the prospect of significantly higher taxes, on top of those hardships, has them cutting back and socking their money away, economists say.
President Obama and congressional leaders want to let the Bush tax cuts expire for top income earners, which would send the top rates from 33 percent to 36 percent, and from 35 percent to 39.6 percent.
But far worse is the talk of ending the cap on Social Security withholding to extend the life of the insolvent entitlement. Currently, income above about $100,000 is exempt from the withholding. Eliminating the cap would result in a huge marginal tax rate increase — someone who earns $250,000 could expect to pay an additional $10,000 in Social Security taxes, should Democrats follow through with the plan.
Any talk of tax increases — not just in this economy, but any economy — has dire consequences. Consumers and investors will react negatively to any possibility of higher costs.
If President Obama and Democrats are sincere about wanting the economy to recover — in fact, they’re hyperfocused on the health of government instead of the private sector — they’ll renounce all the tax increases and make the Bush tax cuts permanent.