Effects of Taxation: Investments by Individuals

By J. Keith Butters; Lynn L. Bollinger | Go to book overview

CHAPTER XII
Liquid Assets

IT IS frequently charged that high taxes, reinforced by an antagonistic attitude by government toward business, have caused wealthy individuals to hoard large portions of their funds, or, as it is sometimes phrased, to go on an investors' strike. The purpose of this chapter is to try to determine the validity of this charge to the extent that our data bear on it. The general organization of the chapter is essentially the same as that of the several preceding chapters. We shall first summarize the data from the active investor sample, then illustrate the various reactions noted by citations from our interviews, and finally discuss the general relation of our sample data to broader groups of investors.


LIQUID ASSET HOLDINGS OF ACTIVE INVESTOR SAMPLE

Liquid assets -- by which we mean currency, demand and time deposits, and U. S. government bonds -- constituted one of the major asset holdings of the individuals in the sample. A general view of their size and distribution is provided by Tables XII-1 through XII-3. The individuals with incomes of $25,000 and over and with a total wealth of $250,000 and over held liquid assets amounting, on the average, to about 25% to 30% of their total cash and marketable securities and to about 10% to 15% of their total wealth (Table XII-1). The individuals in the lower wealth groups -- and to a much lesser extent those in the lower income groups -- held larger proportions of their funds in liquid form.

In explanation of this relationship, it seems natural to anticipate that the lower wealth and income groups would hold larger fractions of their investment assets in liquid form simply because of their need to maintain working balances of

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