It's been proven over and over, but with the economy in crisis and stimulus packages the order of the day, it needs to be repeated: tax breaks for wealthy people just don't feed as much into the economy as tax breaks or other economic assistance for people farther down the ladder.
Middle-class and poor people spend their money; they don't put it in trusts. They spend it right away, and they spend it at home. The wealthy may do their shopping in Paris, their relaxing in Greece, Thailand, Peru. The poor buy their food, clothes, gas, beer and movie tickets right here.
What kind of spending gives the economy the fastest shot in the arm?
According to testimony before Congress last July by Mark Zandi, founder and chief economist of Moody's Economy.com and an unofficial adviser to the presidential campaign of John McCain, food stamps give the GDP the quickest boost: an extra dollar in the food stamp program puts $1.73 back into the economy. Said Zandi, "People who receive these benefits are very hard-pressed and will spend any financial aid they receive within a few weeks."
Close behind food stamps come unemployment benefits. Extending them, Zandi said, yields $1.64 per dollar invested.
Infrastructure work yields $1.59 per dollar invested, though, Zandi pointed out, the impact on the GDP may take more time to show than the impact of food stamps and extended unemployment benefits. Aid to states yields $1.36 on the dollar, payroll tax holidays $1.29 and refundable tax rebates $1.26.
Zandi's figures show that breaks for the wealthy and for corporations are counterproductive. Making the Bush income tax cuts permanent would actually drain the GDP of 29 cents on the dollar, and corporate tax cuts steal 30 cents per dollar, Zandi said.
