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Wednesday, December 5, 2012
James Galbraith — The Rich Have Plenty to Give, but Forget Deficits
Summary: Taxing the rich when the propensity to save is elevated reduces their saving and has little to no effect on the economy, i.e., it does not affect either consumer spending or firm investment, hence doesn't affect aggregate demand. However, taxing the middle class, or reducing their benefits, which amounts to pretty much the same thing mathematically, directly affects their spending, hence aggregate demand and the economy as a whole. Deficits don't matter, but if addressing the deficit is so important to some, then tax the rich and leave the middle alone.