Saturday, August 21, 2010

Do Bush's tax cuts help restaurants?

Recently, I wondered where the marginal unit of aggregate demand comes from to guess at what impact raising taxes on the rich might have. In comments, JKH wondered how much marginal AD came from luxury items such as yachts etc.

The top 3% by income in the US make approximately $200,000 to $249,999. Not bad, but not investment banker money either. Two college educated professionals with technical degrees in mid-career, or a single lawyer fairly senior in his firm, or specialist MD, could make that by themselves. The question them becomes, how much does this group eat out at mid-end restaurants?


Blogger Greg said...

I can only speak for me and my experiences but my wife and I eat out A LOT!. I'm usually within the range you quote depending on how many hours I actually get called back in a year (my wife was raised to a management spot last year as well) and if you are referring to gross incomes.

We eat out alot AND we see a lot of the same people out. There is no doubt in my mind that it is our income class plus those just below that mostly support the restaurants in town (the college students too but they are on daddys account usually). We almost ALWAYS eat at mid end restaurants, no point in eating at others when you eat out as much as we do.

3:05 AM  
Blogger JKH said...


It’s very skewed within the top 3 per cent.

From Krugman today:

“But these same politicians are eager to cut checks averaging $3 million each to the richest 120,000 people in the country... According to the nonpartisan Tax Policy Center, making all of the Bush tax cuts permanent, as opposed to following the Obama proposal, would cost the federal government $680 billion in revenue over the next 10 years... and where would this $680 billion go? Nearly all of it would go to the richest 1 percent of Americans, people with incomes of more than $500,000 a year. But that’s the least of it: the policy center’s estimates say that the majority of the tax cuts would go to the richest one-tenth of 1 percent. Take a group of 1,000 randomly selected Americans, and pick the one with the highest income; he’s going to get the majority of that group’s tax break. And the average tax break for those lucky few — the poorest members of the group have annual incomes of more than $2 million, and the average member makes more than $7 million a year — would be $3 million over the course of the next decade.

So by my calculation, 120,00o people will end up with additional disposable income equal to about 25 basis points of GDP/GDI.

That’s not insubstantial, let alone what goes to the other 9/10ths of the top 1 per cent.

Again, I wonder what the MPC/MPS is for these upper strata, and how they direct their MPC.

5:49 AM  
Blogger winterspeak said...

JKH wrote:

"I believe you're not a great fan of Billy blog, but today's is on topic:"

(sorry, I fat fingered it).

Once I had waded through Billy's turgid spiel, I'm left no better than I was. Yes, the rich have more discretionary spending so a tax cut multiplier may be smaller, but to what degree does their discretionary spending represent marginal aggregate demand in the current economic context? This is a balance sheet recession, it isn't straight money-in/money-out.

This is also one of the two reasons why I'm impatient with the Krugman quote (and its ilk) you have above. The 3rd percentile clocks in at $200K-$250K/household (gross). This is not "rich". In fact, this may be the sweet spot where they tend to spend much of what they earn AND have a lot of discretionary spending as they can cut back on "necessary luxuries" like child care, meals out, vacations, etc.

Krugman, and the Left in general, play a bait-and-switch (plus a misrepresentation) on this topic all the time. The bait-and-switch is talking about "the rich" ($2M-$7M/year) and then taxing mid-career college educated working couples ($200K-$250K/year). As everyone loves the point out, the distribution is very skewed! Now look at the numbers!

9:25 AM  

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