Bloomberg News
Tax cuts are often a good tool to boost an economy, but the impact largely depends on whether people think they’ll get more money in their paychecks.
Viewed that way, the recent Trump tax cuts probably won’t cause Americans to sharply increase how much they spend, according to a study by the New York Federal Reserve.
Just 37% of households think they’ll be better off 12 months from now because of the tax cuts, the New York Fed concluded. Some 47% expect no change and 16% think they will be worse off.
It shouldn’t come as any surprise that wealthier households — those making over $75,000 a year — believe they are both well informed about the new tax law and that they’ll benefit personally. By contrast, roughly 70% of families with incomes under $75,000 a year tend to think their lives will be about the same or “somewhat” worse.
According to an analysis from the Tax Policy Center, those with incomes below $75,000 see a boost between 0.1% and 1.6%, whereas those with incomes above that threshold see a gain between 1.8% and 4.3%.
Wealthier Americans tend to spend less as a percentage of their earnings than lower-income families who have to devote most of their income to necessities.
“We observe a relatively modest increase in average expected spending due to the tax reform,” the authors of the Fed survey wrote.
The study does not take into account the behavior of businesses, which received the biggest tax cuts in 32 years. If the U.S. benefits substantially from the new law, economists think it’ll be because businesses took advantage of lower taxes to boost investment.