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Subject:  Re: The Fiscal Cliff-Solving the wrong problem Date:  11/14/2012  8:40 AM
Author:  jgc123 Number:  408438 of 536666

brucedoe: "Raising of the taxes on the wealthy will probably not affect their spending because their incomes will still be far more than they spend; however, a rise in the taxes on the middle class that spends nearly everything they earn will be lowered and hurt the economy."

That matches my experience both personally and with regard to my law partners in the past and our clients represented throughout the years and it seems to match the evidence as best I can tell.

If I were 35 years old, supporting my family, paying a mortgage and car payments and my wife and I were still earning less than 100K, any decrease in taxes would be a welcome opportunity to buy food and clothes, replace broken down cars, save for college and so on.

But at 56 with grown children and a paid off mortgage, a 5% increase in only those dollars which we earn above $250,000 will likely have little or no impact on our spending or change my level of investment in my law firm. Rather, it will have a minsiscule impact on the amount of money I can put into savings or invest in stocks or bonds.

I, and anybody who bothered to look at the numbers could see that one of the biggest components to the deficits was the tax cuts, but the problem lies 1) with the political impossibility of rolling them all back and winning elections afterward because they are now a sacred cow and 2) in a deflationary environment tax increases on the middle classes are likely to have a more outsized deflationary impact on consumption than taxes on earnings above (I actually think the max should be limited to earnings above $350,000 not $250,000 - the real top 1%1), would have less deflationary impact.
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