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The Porsche 911 GT2 RS, with a price tag of $329,000 and 620 horsepower, sold out in less than two months since its debut. It’s these kind of expenditures that show consumption by the wealthy will continue, despite the slowdown in the economy and threat of higher taxes on the group from the Obama administration, according to Bank of America Merrill Lynch.
“We see several reasons for optimism about spending on luxury items,” wrote U.S. economist Neil Dutta, in a report. Higher savings, less exposure to housing, rising equity investments, and a tighter job market for the college-educated create “a secular story that bodes well for those catering to upper income earners.”
Post mid-terms, if Republicans don’t capture the Senate, taxes for the wealthy are likely to go higher for investments, estates and income, but they’ll still be lower than the rates during the 1990s when the wealthy flourished, Dutta notes. Plus, the anticipation of higher tax rates may spur the rich to actually spend more right now, the economist argues.
A spate of recent news out of the luxury sector may back up this contrarian thesis by the Merrill economist. In a tie up of two giant French luxury companies, LVMH Moet Hennessy Louis Vuitton revealed over the weekend that it built up a 17 percent stake in Hermes International.
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