It’s long been thought by some government officials that low-income households would spend a tax rebate check quicker than high-income families. While that widely-thought theory makes sense because of the fact that those who are “cash-strapped” would have more of a need for the money than those who are better off financially, an interesting new study shows just the opposite.
The study by the Federal Reserve Bank of New York is based on 200 workers and indicates that high-income workers were more likely to spend the extra cash than their lower-paid counterparts. If these results turn out to be correct, they suggest that payroll tax cuts may do a better job stimulating demand than economists had originally assumed.
The reason for the study is because the Fed is suggesting that an upcoming tax break could significantly boost consumer spending. Apparently of those workers polled in the study, 36 percent.
The Obama Administration proposed the payroll tax cut in an effort to cut taxes by as much as $2,200 per worker and by an average of about $1,000 for a middle-income household. It was meant to be a temporary one-year stimulus, but it appears as though it will also be extended for an extra year.
It appears that a major reason why the results were a bit surprising was due to reasons of scarcity and uncertainty of future earnings for workers. Those people who were worried that the tax cut was only going to last a year were apparently less likely to spend the extra income when it was believed to be only a one-year break.
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