What I’ve never understood about the idea of tax cuts for the rich to stimulate the economy is that, as one wealthy person told me, “I spend what I’m going to spend, and the rest goes in the bank.” Tax cuts don’t stimulate growth, unmet demand stimulates growth. Sure, there are some rich people with insatiable appetites who will spend all of the additional money. But most will just stick their money in the bank (or invest and drive up asset prices simply because they have to invest in something). In an environment where banks aren’t lending, that is the worst way to create jobs–the money just sits in the bank.
In an interview with The Guardian, actor Matt Damon thinks the same thing:
Damon appears so disillusioned that, playing devil’s advocate, I ask whether he is considering voting Republican. “Good God, no! I just got a 3 per cent tax cut. Do you think I’m going to start a small business with that money? You’re out of your mind if you think so. I’m going to put it in the bank. So is every other guy that makes the kind of money I make. I don’t think that’s what’s best for the country. I think a stronger middle class makes for a stronger country.”
Really. That’s how most, though not all, rich people will behave. They might spend some of that money and create some jobs, but the government will spend all of it and create many more jobs.
Of course, we could go a little farther and do what Senator Bernie Sanders proposed–a 5.4% surtax on income above $1 million: