Spending by wealthy

Spending by wealthy

August 19th, 2011 in Opinion Times

Warren Buffett's tax advice to Congress, discussed above, makes it clear that very wealthy Americans would not face difficulties if Congress were to bring investment tax rates for multimillionaires closer to the income tax rates that ordinary Americans pay. By the sales figures of companies that cater luxury goods to high-end shoppers, his view is well-grounded.

Those figures show sales of luxury cars, designer clothing, jewelry, furs and other high-end goods rising steadily over the past 10 months compared with the prior year's sales. Sales growth in 2010, in turn, also had zoomed upwards as the economy recovered from the steep 2009 retrenchment, according to a recent New York Times report on data from MasterCard Advisors Spending Pulse.

Porsche, for example, reported a 59 percent increase in profit in the first half of the year. Mercendez-Benz's sales in July leapt almost 14 percent, with much of that coming from sales of its S-class sedans, which can run over $200,000, The Times reported. BMW posted growth in the second quarter of this year that doubled the same period's growth last year.

In the most fashionable stores in the nation's largest cities, designer shoes and bags in the $1,000 to $2,500 range are reportedly flying off the shelves. Likewise, jewelry: Tiffany enjoyed a 20 percent increase in first-quarter sales. Gucci, Saint Laurent and Yves, among other brands, helped the PPR group to a 23 percent gain through June.

Mark Zandi, chief economist of Moody's Analytics, told The Times that growth in the luxury goods category was vital because the top five percent of income earners account for about a third of consumer spending, and the top 20 percent of earners overall account for nearly 60 percent of consumer spending. By contrast, sales are slow at most Main Street retailers who cater to the struggling middle-class, prompting deep discounting.

The disparity is not encouraging, but it is illuminating. It speaks directly to the argument that Buffett makes about asking the ultra-rich to share in the sacrifice that Republicans are now demanding of the middle class through cuts in core social programs like Medicare, Social Security and student aid.