We know that higher income households are more likely to bank the cash than spend it.
No we don't know that.
We do know that higher income people save or invest a larger percentage of their income. That doesn't mean they save or invest more of the next marginal dollar under any circumstances, or in the particular situation of our economy.
I'm not rich. If I made more money, or had lower taxes I would save it (defined broadly, including paying down debt), if I was rich, I might not spend it, but I'd be more likely to do so.
Of course my personal preferences at different income levels are hardly definitive, or even important evidence, for what will happen in the whole economy, but generally the spending of the rich is more flexible. They can cut back more easily if they are taxed more. Middle class people with mortgage payments that account for a larger fraction of their income, and poor people who's consumption is mostly for keeping themselves alive, have less scope to reduce their spending.
Beyond that if the rich (or anyone else) does save the money, then they are making money available for other people's consumption or investment. They (esp. the rich) are unlikely to put it under mattresses.
Also investment is spending. You buy stock, bonds, gold, new production equipment etc. Its not consumption spending but it is spending. It either goes back in to the private economy, or it goes to the government which helps support all the spending that the people who think government should try to increase demand want (well true some of it is invested overseas, which has some benefits, but not in terms of short term increase in American demand, and perhaps not in short term increase in demand for American goods and services, but there hasn't been an enormous increase in such investment, money flowed in to US treasuries more than any other security) |
