With the political discussion centers on arguing whether tax cuts will create jobs, somehow nobody stops to think about how wealthy people actually spend their money. Instead of a rhetorical debate, we should be having a factual discussion of what happens when wealthy people get a tax cut. After looking into the issue of how the ultra-wealthy spend their money, I learned that this data is actually much harder to come by than I initially expected. Still, what I did learn was not surprising given the complete lack of real stimulus generated by the Bush tax cuts.
The New York Times recently did a report on spending habits of the ultra-wealthy, but while it was full of anecdotes, there was little hard data. It read as more of a shock piece than a concrete look at real spending patterns, and as such it is easily dismissed as "those are cherry-picked examples". After a little more searching I found this older report that offered some statistics on what wealthy people spend their money on, and it helpfully broke it down by net worth, looking at people with $1-$5 million (wealthy), $5-$10 million (very wealthy), and more than $10 million (ultra-wealthy). So, what do the ultra-wealthy spend their money on?
Real Estate
This is obvious, especially given the massive malinvestment in real estate over the last decade. 70% of the ultra-wealthy owned multiple million dollar residences in 2004. This is repeatedly referenced in the recent New York Times report, which focused on stories of multi-million dollar homes being sold. It is also perhaps not surprising that the number of wealthy and very wealthy individuals with multiple homes was only 6% and 24% respectively. Without more information we can't say how much of the Bush tax cuts went to high-dollar houses, but clearly a lot of ultra-wealthy individuals bought extra houses with their tax-cut money.
Personal apparel
If you're familiar with fashion you will probably not be surprised that 84% of the ultra-wealthy planned to spend more than $20,000 per year on clothing. These individuals support the high-end fashion industry, spending large amounts on exclusive items from well-known designers. This number drops significantly for the merely wealthy to 11%.
Exclusive Clubs
Exclusive golf clubs are a stereotypical hangout for wealthy individuals, and sure enough nearly 50% of the ultra wealthy belong to multiple golf clubs, as compared with only 1% of the wealthy.
Investment Opportunities
Unfortunately I found no hard data for the investment patterns of the ultra-wealthy, but it's immediately obvious that their investments are also completely different than even the wealthy. Just as many mutual funds require several thousand dollars to start investing, there are private hedge funds that exist which require several million dollars at minimum. According to the Hedge Fund Law Blog, most hedge funds require at least $1.5 million in capital, and there are some that require much more. By definition only the ultra-wealthy can afford to put their money in a private hedge fund.
Ultra wealthy individuals spend money on luxury goods, expensive real-estate, exclusive clubs and investment opportunities unavailable to normal individuals. They are not magical job creators, and our public debt was created via tax cutting policies that led directly to the wealthy getting wealthier. There is ample evidence that they do not create more jobs with this money - instead they fund a large luxury industry that caters to the ultra wealthy. While this industry does employ individuals, any analysis would conclude that these jobs are extremely expensive and come at the cost of economic activity that would benefit a much larger segment of the population. For example, Honda employs about 150,000 people while Lamborghini employs just 567 people. Every time a so-called conservative proposes radical tax cuts, they are literally proposing taking money away from education, basic research, and public infrastructure, and giving it to the ultra-wealthy who will then use that money to buy luxury goods unavailable even to wealthy individuals. The ultra-wealthy are not the small-business owners and entrepreneurs who create the majority of new jobs, and giving them more money on top of their record-breaking levels of wealth simply won't solve our economic problems.