Re: Tax Hikers Senselessly Stuck on Saving

by Stephen Spruiell

Hear, hear, J.D.

I have a non-rhetorical question for those making the argument that increasing taxes on the rich won’t have negative economic effects because the rich have a higher marginal propensity to save their money in banks. Set aside the incentive effects of tax hikes, which demand-siders don’t seem to think exist: Bank deposits essentially function as low-interest loans to banks. If this is such a bad thing, or at least such a negligible activity that we don’t need to worry about a tax policy that discourages it, then why is the U.S. Congress about to divert $30 billion into a program that lets the Treasury Department — wait for it — make low-interest loans to banks?

Obama keeps saying that not raising taxes on the top two brackets would “cost” the government $700 billion over the next ten years, and worse, that most of that money would just be put into banks. Sounds a lot like a slow-motion TARP, only with rich people using their own money instead of Timothy Geithner using ours. Would we really be better off letting the government in all its prudence and wisdom spend that $700 billion over the next ten years, or should we let the people who earned it channel it naturally into the financial system? If you think that ongoing weakness in the banking sector is a big problem (and I do), shouldn’t you want rich people to put more of their money in banks? 

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