Trickle Down Economics

We’ve been hearing about trickle down for decades. Most notably championed by Ronald Reagan and every voice on the right since then. No matter the problem, no matter the circumstance the right argues that the answer is to concentrate more wealth in the hands of the wealthy. They argue that when the wealthy have money it will trickle down throughout the entire country in the form of jobs they create, goods they purchase and investments they make.

Unfortunately, the facts of the last 30 years don’t support our national experiment with trickle down economics. What was once a legitimate idea to be tested based on the work of Laffer, has become a laughable mythology of the modern right.

Since the 1980s, and even dating back to the 60s and 70s, we have been slowly but steadily lowering taxes. Taxes on the wealthy have been reduced almost 60% since 1961. Corporate taxes have been reduced and are now at an effective rate around 15%. In fact, Sally Kohn notes "corporate tax receipts accounted for 30 percent of US federal revenues in the mid-1950s. In 2009, they made up just 6.6 percent of federal revenue streams." While corporate rates have dropped along with the tax rates of the wealthy, the effective rate for everyday Americans has actual increased over that same period.

Income Gains Since 1971

If you look at the net result you find that the wealth has indeed moved into the hands of the wealthy just as trickle down would hope. The question becomes whether or not that concentration of wealth is resulting in benefit for our nation as a whole. The short answer is that trickle down doesn’t.

Productivity and Wages

Since the days of Reagan, the wealthiest 10% have received 98% of the growth in income. Naturally this means that the bottom 90% has received just 2% of the growth in income. During this period productivity of American workers has continued to grow, yet over that span the income of the middle class has essentially remained flat. Over this timespan we have seen American households increasingly move from one wage earner to two in order to support their families. We have seen bankruptcy on the rise and we have found the middle class shrink while the lower class and working poor are increasing.

Over this same time span corporations have also amassed enormous profits and large stores of cash. In fact, during the recent economic downturn, even while so many are unemployed and suffering, corporations have managed to amass almost $2 trillion in cash.

The underlying premise of trickle down is that supply drives the economy. It should be clear and for many of us, it is painfully clear, that concentrating wealth at the top does not benefit the bottom or middle. WIth such great concentrations of wealth in the hands of those who create supply, if trickle down were valid, we would be financially stable and experiencing financial growth. But of course, that is not what is happening. In fact, as Bruce Bartlett points out:

"no one in the Reagan administration ever claimed that his 1981 tax cut would pay for itself or that it did. Reagan economists Bill Niskanen and Martin Anderson have written extensively on this oft-repeated myth. Conservative economist Lawrence Lindsey made a thorough effort to calculate the feedback effect in his 1990 book, The Growth Experiment. He concluded that the behavioral and macroeconomic effects of the 1981 tax cut, resulting from both supply-side and demand-side effects, recouped about a third of the static revenue loss."

It isn't a question of belief or political philosophy, we know that tax cuts don't stimulate the economy in the ways we've been told. We know that they do starve the government with only about 1/3 of the lost revenue being recouped, the effects of which we can see with our own eyes in our crumbling infrastructure and our growing deficit. What this means is that the tax cuts do put money in the pockets of corporations and the wealthy but little beyond that will ever happen. The economy will not magically grow. The only growth that tax cuts have been proven to stimulate is growth of the deficit.

We Grew Together

On the other hand, the greatest periods of economic progress and stability in our nation have been when unions and the middle class were strong. Wages were fair and on the rise putting money in the hands of Americans who in turn spent that money. This benefitted the wealthy and the middle class and thereby the entire nation.

You don’t have to be anti-corporation to be pro worker, pro middle class. It would appear that you do have to be anti worker and anti middle class to be pro trickle down.

Unions Decline Top 1% Increases

Decades of union busting and right wing propaganda have instilled a real fear in most American workers. Americans have become so afraid of losing what little they have that they don’t even challenge the wealthy or the corporations when they tell us that more for them will mean more for us. Americans simply, grudgingly, take pay cut after pay cut. Benefit cut after benefit cut. They take on more and more of America’s burden while they watch the wealthiest among us take on more wealth with less responsibility.

We’re told that if we don’t allow this to happen, if we resist then the corporations will take our jobs to another state or another country where they can pay less for labor, offer less benefits and ensure a less unionized work force.

After at least 40 years, it’s clear that trickle down economics doesn’t work. With so many years of trickle down you would think our cups would be overflowing. You don't need an economist to tell you that your wages have been flat, your debt has been increasing and our national deficit has exploded. You don’t need an economist to tell you that your cup is not overflowing.

Conservatives and liberals ought to be able to agree on the facts. You can believe in low taxes, you just can't believe that they will grow the economy. Tax cuts have fundamentally weakened our nation. Tax cuts have grown the deficit. Tax cuts have contributed to the decline of our national infrastructure. Tax cuts have concentrated wealth in the hands of the few while the wages of the many have stagnated. As income inequality has grown, so too has our political division.

Forty years of data don’t support trickle down economics. The left must stop enabling the voices of the right in propagating this myth. Life, liberty and the pursuit of happiness is guaranteed for all people. If we on the left make a stand then perhaps those conservatives who have a respect for the facts and their fellow Americans will help us transition to another fiscal approach that replaces the failed trickle down experiment of the 20th century with fairness and growth for all Americans.