Who Spends What?

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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?

Comments (9)

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  1. Kyle says:

    Rich People 101: Do not realize assets unless it is in your benefit to do so.

    They also have a very firm rule about dipping into their principal. The wealthy live in the margins.

    I love when people complain about their big boats and private planes.. Who do you think designs, builds, repairs, and drives those yachts?

    Ancillary and tertiary industries for those luxury goods = jobs.

    As entertaining as it would be to see Robin Leach in South Dallas doing “Lifestyles of the Liberal and Entitled,” it just wouldn’t be the same.

  2. seyyed says:

    if anything, stunting economic growth or raising taxes on the rich will encourage them to save more instead of spend

  3. Bobby Johnson says:

    I dont think there is any question that the wealthiest of people spend the most money on comfort goods.. Im baffeled that people think if we take away some of their wealth, we could somehow fix our spending problem. I just cannot support essentially stealing from someone in order to give to another.. I understand societal neccesities, but how much is too much?

  4. Lewis says:

    Right, high income families still spend additional dolars. But if the goal is stimulus, the lower quartiles are your best bet.

    http://www.voxeu.org/article/did-2008-us-tax-rebates-work

    I agree though, there is much more than this debate if we’re going to get our country back on the right track.

  5. Thomas says:

    Of course. Also, promoting consumer spending will always do more for the economy than boosting government spending. Research has shown that stimulus spending outside of wartime has not been able to generate a higher return multiplier than 0.2 – not 120%, mind you, we’re talking 20%.

  6. Kyle says:

    I would disagree, Lewis. Vox is a great resource, but all Broda and Parker say is that the stimulus worked; and they looked at low income / low wealth households because their spending increased the greatest percentage. Which makes sense, not having disposable income..

    Would need to see the margins to agree that the lowest quintile was where the magic happens. From this and every other BLS I’ve seen – Pam has the right of it.

  7. Pam says:

    My post was not addressing a specific “stimulus” per se, but high-income earners are in a better position to employ others based on the opportunity cost of their time. This is just something I have observed in day to day life. Case in point: things like yard work, housecleaning, drycleaning, etc. As income increases, the opportunity cost of doing maintenance activities increases as well. A CEO, for example, is not mowing her own lawn or cleaning her own house. Even if she is an expert at doing both, she would probably pay somebody to do them since the value of her time is much greater than that of a person earning minimum wage. Or she might have less leisure time than the average median wage worker and will maximize her utility by spending a couple of weeks at a luxury resort. Just sayin’…

  8. Life of Pi says:

    Pam I think you are so awesome!

  9. Lizze says:

    Every economic class tends to spend money on one thing or another..

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