The Right and Wrong Way to Obsess Over the Rich

It makes a lot of sense, except for one big problem: The wealthy consume a significantly smaller portion of their wealth and after-tax income than the rest of us. Which is to say, at any given moment, the wealthy have the money to consume more but choose not to. So giving them additional money through tax cuts (or refraining from tax increases) wouldn’t increase consumption very much. The poor and many in the middle class, on the other hand, don’t have enough money to consume as much as they’d like. So cutting their taxes would almost certainly increase consumption. In fact, if you raised taxes on the wealthy, even in their beleaguered state, and refunded the same amount to the poor and middle class, you’d probably raise consumption overall.

It’s not that the rich aren’t important to the economy; they clearly are. It’s that, unlike the poor and middle class, our capacity to affect their behavior through public policy is relatively limited--they really are different from you and me.