sebster wrote:

Phryxis wrote:Bleh, that's just as dogmatic as saying it always does.

I mean, who are "the rich?" How far does money have to "trickle down" for it to be "working?"

I don't feel like giving a multi-millionaire a tax break is going to significantly increase his spending, but I do feel like there is a wide swath of the people that are called "rich" that will spend more or less depending on their taxes, and those people are going to be buying things that will necessarily impact the American economy, things like homes, home improvements, cars, electronics, etc.

If government taxes that money, it has that money to spend. Assuming we're looking at a budget policy with no impact on the final deficit, then by definition government will spend all the money that it receives. Whereas we know that if they have a greater increase in their net income, they only likely to spend somewhere 60c and 90c in the dollar, depending on their incomes already (the wealth are likely to spend less, of course). As such, we can see that taxing and government spending will result in a greater increase in aggregate demand.

Now, complicating that are two competing points. The first is the idea of incentive, that if you tax the rich too highly they won't be incentivised to earn more money. Which is a fair point and important to consider, but it really doesn't present as a factor when you're talking about a top marginal rate of 35%. The other factor is savings - the wealthy save a greater portion of their income and are in a greater position to invest it. Which is great and all and seemed a pretty decent piece of reasoning in the late 70s and early 80s, but it just hasn't worked out. Turns out investment is driven by profit opportunities, not spare funds.