Gallup released a survey last week showing that American households earning $90,000 a year of more reported that their daily spending has fallen about 36 percent since 2008. This spending excludes mortgages, cars and utility bills.
One of the biggest arguments used against giving tax cuts to upper income households is that any financial benefit from the cuts will not stimulate consumer spending in the economy; it will simply be saved by said household. While it is true that a larger share of upper household income goes to savings and investments
than for lower income households, it is a fallacy to assume that somehow any discretionary spending is simply lost on the upper deciles.
So let’s review: According to the 2011 Consumer Expenditure Survey published by the Bureau of Labor Statistics, the highest income category reported on the survey (households earning $70,000 or more) account for 53 percent of all expenditures counted, including housing, utilities, clothing, food, entertainment and more. And yes, while they pay a greater than average share of total expenditures on Social Security, pensions and retirement accounts (72.6 percent) they also spend a much greater total share than average
on some other goods:
- Floor coverings – 73 percent
- Vehicles other than cars and trucks (includes motorcycles, private planes) – 72 percent
- Audio visual equipment and services (entertainment) – 69.2 percent
- New cars and trucks – 68.7 percent
- Lodging other than primary residence (includes vacation homes, hotels and motels) – 68.3 percent
- Public transportation (includes air travel, mass transit, taxis) – 64.7 percent
- Personal household operations (includes day care services and housekeeping services) – 64.6 percent
What? You mean to tell me higher income people actually spend money? Yes, and not only that, they spend money on goods and services that keep others employed. They replace their floors, go on vacations, hail taxis and hire babysitters. And as a former hotel employee myself many years ago, I thank them.
So let’s stop the discretionary spending spats and move on to the fiscal cliff, shall we?