Trickle down fails yet again

Written By: - Date published: 11:13 am, November 3rd, 2019 - 50 comments
Categories: Donald Trump, economy, politicans, tax, trade, uncategorized, Unions, workers' rights - Tags:

This tweet recently attracted my attention.

It linked to this article that said this:

Donald Trump’s signature legislative achievement was the corporate-tax cut he signed in 2017. Republicans said it would grow the economy by up to 6 percent, stimulate business investment, and pay for itself.

None of those promises have come to pass. GDP growth has declined to less than 2 percent according to the latest report, released yesterday. Business investment has now declined for two straight quarters, dragging down economic growth. And the federal deficit exceeds $1 trillion.

Trump is not the first right wing politician to try this.  Just check out the history of Reganomics, Thatcherism or Rogernomics to see what was tried three decades ago.

The theory of trickle down dates back to Milton Friedman and the Chicago School of Economics.  Relying on work by economist Arthur Laffer and the infamous Laffer Curve they argued that a reduction, any reduction in tax would improve overall economic performance.  Their analysis was simplistic, because clearly for the theory to work it was important that if public spending was decreased the replacement private spending allowed by the associated tax cut also be for a public good.  Private jets and French wine do not improve the plight of an ordinary person.

Supporters of the theory claim that Regan’s massive tax cuts in the 1980s helped pull America out of recession.  What was much more likely was a tripling of public debt from $712 billion in 1980 to $2.052 trillion in 1988 provided the stimulus.  Even with this large increase public debt was a relatively modest 41% of GDP in 1988.

And it has directly contributed to an increasing gap between the top 1% and the rest of us.

Kimberly Amadeo at The Balance offers this conclusion:

The trickle-down theory postulates that the benefits from tax cuts, capital gains, dividends, and even looser regulations on corporations and wealthy individuals would eventually flow down to benefit middle- to low- income earners. The extra wealth accruing from the deductions would drive the wealthy to invest in or expand businesses, boosting economic growth.

The Laffer Curve supports its effect but only up to the point where the tax rates are at a prohibitive range. Out of this range, trickle-down is deemed infeasible. 

Trickle-down economics generally does not work because:

  • Cutting taxes for the wealthy often do not translate to increased rates of employment, consumer spending, and government revenues in the long-term.
  • Instead, cutting taxes for middle-and lower-income earners will drive the economy through the trickle-up phenomenon.
  • The added income for the wealthy, resulting from tax cuts, will simply increase the growing income inequality in the United States. 

President Trump’s Tax Cuts and Jobs Act is of current concern because this trickle-down policy is seen to exacerbate the income inequality already kicked into overdrive by Reaganomics.

And Thomas Pitketty’s book Capital in the twenty first century is a withering deconstruction of the theory of trickle down. From the Guardian:

The gist of Piketty’s book is simple. Returns to capital are rising faster than economies are growing. The wealthy are getting wealthier while everybody else is struggling. Inequality will widen to the point where it becomes unsustainable – both politically and economically – unless action is taken to redistribute income and wealth. Piketty favours a graduated wealth tax and 80% income tax for those on the highest salaries.

Lord (Adair) Turner, the former chairman of the Financial Services Authority, says Capital is “a remarkable piece of work”. Turner, who has name-checked Piketty in his recent lectures, added: “He is saying that we have a set of tendencies at work to which the offset has to be a degree of redistribution. I completely agree with him.”

Krugman, writing in the New York Review of Books, says Piketty’s work will “change both the way we think about society and the way we do economics”.

The book has also created waves on the right. Allister Heath, writing in the Daily Telegraph, said the book was flawed but admitted that supporters of capitalism were being “slaughtered on the intellectual battlefield” and needed to get their act together fast.

The problem for Heath is that Piketty’s book seems to explain the brutal world of the Great Recession and its aftermath rather better than trickle-down economics. Capital speaks to the Occupy movement; it speaks to the under-25s in Britain whose real wages are 15% lower than at the end of the 1990s; it speaks to Generation Rent.

Trickle down is a fancy sounding theory justifying continued greed by the wealthy for even more. The sooner its complete lack of a rational let alone moral underpinning is exposed and acknowledged the better.

50 comments on “Trickle down fails yet again ”

  • Comments are now closed

  1. Sabine 1
    3 November 2019 at 11:56 am

    why, the tax cuts worked as intended

    rich people pay now less tax

    rich people can use the savings they make to buy back the shares of their companies thus reducing shareholder (plural) to shareholder (singular) and reaping the rewards of the dividend now only being paid to them

    poor people got a lower witholding tax rate – feeling richer then ever before (tax cut see 🙂 )

    tax returns reflect accuratly the amount of withholding tax and as less was paid, less is returend (same as before just reverse)

    a few deductions got culled after all people now earn more on a monthly basis (which often is the base on which welfare and support is calculated) and thus welfare has been eliminated

    and because less tax revenue was raised everyone can now simply state that government don't work and more private investment is needed to provide for all the things poor people need to continue to function in society, like toll bridges, toll roads, pay as you go healthcare, education, etc etc etc. drowing government in a bathtub as per Grover Norquist who i think also said that the republicans ust needed someone to sign the legislation they put in front of him…..that signature would be that of the shitface in the shitty house.

    Seriously, at what stage will you and others finally stop to parrot their talking points about how trickle down does not work, when they clearly engage in trickle up which according to them works really well considering that he is talking about more tax cuts.

  2. Blazer 2
    3 November 2019 at 12:17 pm

    Some very interesting reading that deals with this topic…

    The Grip of Death: A Study of Modern Money, Debt Slavery, and Destructive Economics Paperback – August 1, 1998

    by Michael Rowbotham (Author)

    A lucid and original account of where money comes from and why most people and businesses are so heavily in debt. It explodes more myths than any other book this century, yet it's all about subjects very close to home: mortgages, building societies and banks, agriculture, transport, global poverty, and what's on the supermarket shelf. The author proposes a new mechanism for the supply of money, creating a supportive financial environment and a decreasing reliance on debt.''

  3. Climaction 3
    3 November 2019 at 12:22 pm

    lets see a demonstration of this then and cut taxes to the lower and middle incomes here. 7.5Billion surplus means this government can make the first $14000 any one makes tax free. no administrative or distribution costs like with benefits. just straight up money back in the pockets of those who need it most.

    then we can judge it's effects on the economy.

    Better than bleating on about how trickle down doesn't work, make trickle up happen

    • Dukeofurl 3.1
      3 November 2019 at 12:55 pm

      $7.5 bill surplus doesnt mean $7.5 bill of income unspent. Thats just an accrual accounting number.

      The Cash accounting number you are looking for is that the money spent exceed the money raised by $0.7 bill, requiring extra borrowing.

      You have made many incorrect assumptions, but no doubt you hold them dearly, and arent swayed by facts

      • Nic the NZer 3.1.1
        3 November 2019 at 1:24 pm

        This rationale your trying to provide by your argument makes little sense. Both the cash flow and accrual accounting figures surplus and deficit amounts provide no information about sensible government fiscal policy.

        The underlying fact (due to the government ultimately operating the reserve bank) allows the government to at all times buy what ever is for sale in NZ dollars. This makes the surplus or deficit position irrelevant. The government should instead make spending (and taxation) decisions based on the social and economic impact of those on the economy (and ultimately the country/electorate).

        The rationale your providing by your argument is the same rationale provided by Monetarism (e.g the economics of Roger Douglas) and this in turn is based on the fictitious idea that a) the government spending more money is the cause of increases in the non-government parts of the money supply and b) due to a, increases in government spending are the underlying causes of inflation. Both these are simplistic and false and there are many situations in which the government can increase its spending without causing a pick up in inflation (even in some cases spending may reduce inflationary pressures).

        • Dukeofurl 3.1.1.1
          3 November 2019 at 8:21 pm

          "The underlying fact (due to the government ultimately operating the reserve bank) allows the government to at all times buy what ever is for sale in NZ dollars."

          Ah Nic , a social creditor from way back…that should catch on soon.

          • Blazer 3.1.1.1.1
            3 November 2019 at 8:55 pm

            Lets hope it does…without too much ..bloodshed.

          • Incognito 3.1.1.1.2
            3 November 2019 at 11:14 pm

            Is this meant to be an argument or do you concede that you have no argument? Because if you have one, that would be preferable to making snide remarks. It is ok to disagree, you know.

          • Nic the NZer 3.1.1.1.3
            5 November 2019 at 7:39 am

            Yes, Social Credit had enough influence at peak to influence the writing of the reserve bank act. Thanks for highlighting there are whole political movements founded on what I am explaining.

      • Climaction 3.1.2
        3 November 2019 at 1:44 pm

        You must be a riot at parties.

        So no tax cuts for lower income people from you because of accounting.

        • gsays 3.1.2.1
          3 November 2019 at 6:32 pm

          Brilliant. Thanks for the belly laugh.

        • Dukeofurl 3.1.2.2
          4 November 2019 at 7:54 am

          No its not because of accounting. Tax cuts can be for all sorts of reasons, making the threshold tax free actually benefits the high paid much more as its reduction at their top personal rate, the low paid/beneficiaries get only 10.5% up to $14k ( $1470). while the same $14k threshold means $4650 for those earning over $70k and taxed at 33%
          The accounting reference is because some are thinking surplus mean cash left over at the end of the year.

          • Climaction 3.1.2.2.1
            4 November 2019 at 11:40 am

            Ahh the spurious, tax-free-at-the-bottom-means-all-brackets-move-up-so-no-tax-cuts-for-anyone argument.

            what a POS, denying those who need it most because some who don’t need it as much will benefit too.

            tax free at the bottom enables every taxpayer to have there first 14k of income to be tax free. The progressive rates don’t change post 14k.

    • gsays 3.2
      3 November 2019 at 6:29 pm

      "….make the first $14000 any one makes tax free. no administrative or distribution costs like with benefits. just straight up money back in the pockets of those who need it most.

      then we can judge it's effects on the economy. "

      I vote for that!

      • Dukeofurl 3.2.1
        4 November 2019 at 10:49 am

        " those who need it most. "

        Not so . Those on $90k or more get $4650 extra pa, whole those on $14500 or less pa get $1470 or less. With everyone else is in between.

        This is why a tax free threshold like that is a bad idea – especially if you think its going to give the most to those that need it.

        The benefit increase of $20 (+?) pw over the 6 months of the year – also no admin costs- was a better system

        • Climaction 3.2.1.1
          4 November 2019 at 11:42 am

          Only if you move the brackets up accordingly, which wasn’t what was proposed.

          I’m sure the people who value the tax free 14k the most will feel better knowing that their lack of a tax cut in their pocket, also removes the same tax cut from those well off.

          All poor together!

  4. greywarshark 4
    3 November 2019 at 1:21 pm

    I've got p..d off with this trickle down.

    • Incognito 4.1
      3 November 2019 at 1:36 pm

      What goes up must come down [Law of Physics]

      What goes up must stay up [Law of Economics]

      😉

      • alwyn 4.1.1
        3 November 2019 at 6:20 pm

        "What goes up must come down [Law of Physics]".

        Really? Is that Incognito's law?

        When do you expect Voyager 1 to return to Earth? I believe it is currently about 150 AU from Earth and is moving away at about an additional 60,000 km/hr. As far as Voyager 1 is concerned Thomas Wolfe was right. Sorry little spacecraft but You Can't Go Home Again. and you aren't coming down.

        sad

        • Incognito 4.1.1.1
          3 November 2019 at 7:44 pm

          Sir Isaac Newton, if you must ask. I believe he was from even before your time.

          What’s the economy like in space? Might be cooling somewhat but I doubt it’ll be crashing any time soon.

          • alwyn 4.1.1.1.1
            4 November 2019 at 10:26 am

            "Sir Isaac Newton, if you must ask".

            I originally replied to your comment in what I thought was the light hearted manner I thought you had proposed it. Now I am beginning to fear that you might have meant it seriously. Please say that isn't so.

            Newton's laws of motion, and his theory of gravity don't come up with anything like the idea that what goes up must come down. They enable you to calculate, accurately, what is going to happen in particular circumstances. In particular they will tell you that an object in a gravity well will return if it is travelling at less than escape velocity when a force ceases to be applied and that it will not return if it is travelling at a velocity above the escape velocity value.

            That is not the same thing as your original statement.

            However I really don't think that you meant the statement literally, I think you know the subject better than that. I wish I could say the same thing about Marty red planet but I fear it isn't so.

        • lprent 4.1.1.2
          3 November 2019 at 10:12 pm

          When do you expect Voyager 1 to return to Earth? l

          My god, I never realised that alwyn is an earthocentric flat earther..

          Voyager is going to go down some where at some time. It doesn't need to fall to earth.

          Even dimwits like you can't repeal gravity. Or the tendency for space junk to go down gravity wells.

          FFS alwyn – please engage your brain before you use dimwitted analogies. Makes you sound like a truther…

          • alwyn 4.1.1.2.1
            3 November 2019 at 10:33 pm

            There, there.

            I should have allowed for the fact that you are from the left. None of you have ever had a sense of humour.

            • marty mars 4.1.1.2.1.1
              3 November 2019 at 10:47 pm

              you were serious and dim alwyn and you know it – just a very poor understanding of physics and space from you – really poor lol

              • alwyn …
                4 November 2019 at 9:13 am

                I am fairly sure that my Physics training, and knowledge, exceed your own.

                That isn't a very high standard of course.

                • marty mars …
                  4 November 2019 at 10:13 am

                  yes as with most of your scientific thinking you display on here it is just supposition and conjecture and made up thunks – if you know so much prove it.

            • Drowsy M. Kram 4.1.1.2.1.2
              3 November 2019 at 11:10 pm

              Alwyn, can you see the funny side of Incognito's riposte: "Sir Isaac Newton, if you must ask. I believe he was from even before your time."?

              Allowing for the fact that you are from the right, a comparatively humourless tribe, even you might enjoy this – thank heavens for real comedy laugh

            • Incognito 4.1.1.2.1.3
              3 November 2019 at 11:34 pm

              Oh come on, old chap. It’s been long known that lefties have loads more real fun, none of which involves righties. Righties, on the other, would be rather miserable if they couldn’t count their pennies thanks to the workers. Lighten up and look up and away from your ‘stamp collection’ every now and then.

      • greywarshark 4.1.2
        3 November 2019 at 6:47 pm

        You have spaced-out al thoroughly. Sounds lost.

        (https://www.youtube.com/watch?v=oOrSxzfV05Q

  5. Nic the NZer 5
    3 November 2019 at 1:36 pm

    I think its relevant to note the split between trickle down economics which has pretty much always been considered risible, but only influenced Reagan. This stands in contrast to the theory of Monetarism as advanced by Milton Friedman which influenced all of Thatcher, Reagan, Douglas (among many others). Actual Monetarism in practice was pretty strongly discredited when it was discovered Central Banks couldn't actually control the Quantity of Money (Monetarism promoted the economic policy of controlling the quantity of money). Never the less many of the more ridiculous ideas have been and remain re-constituted into the main stream in modified form, leading to a situation in 2008 where the world economy undergoes a financial crisis and the main models of the economy don't even contain a financial system.

    But if anybody thought that Trumps tax cuts would 'pay for themselves' more fool them. Not even the US treasury thought that.

  6. David Mac 6
    3 November 2019 at 3:38 pm

    I'm suspicious of any plan that would have me believe that someone else is going to make me better off whilst I watch TV.

    • alwyn 6.1
      3 November 2019 at 6:25 pm

      You have clearly never watched, and exercised along to, any of the Jane Fonda exercise DVDs.

      Surely you would class being fitter as making you better off? On the other hand you might end up with her figure and if your name is a representation of your presumed sex that might not be quite what you have in mind.

      • Incognito 6.1.1
        3 November 2019 at 7:50 pm

        Good old Jane is doing worthwhile things, isn’t she? Like getting arrested repeatedly to address climate change. It doesn’t matter what you look like, it matters what you do.

      • David Mac 6.1.2
        4 November 2019 at 10:05 am

        Would I need to get up off the couch and exert some energy? The trickle down theory works when I do that too.

  7. Jum 7
    3 November 2019 at 6:02 pm

    GOP – Grand old party or Gallant old party? Neither. It's just like dirty old national. DON.

  8. Philg 8
    3 November 2019 at 6:26 pm

    Firstly, is our current financial/economic system working for the benefit of all of our society, or for the UK, US, France etc? Governments keep telling us things are Ok, but will improve if we keep voting them in. It's clearly not working to create a better society or world. The economic system will have to change fundamentally. What this looks like is debatable, and we're not having a healthy discussion.

  9. Grant not Robertson 9
    3 November 2019 at 10:03 pm

    Thank you Nic the NZer for providing a sensible analysis. One day soon, I hope, people will begin to understand how the money system really works.

  10. WILD KATIPO 10
    3 November 2019 at 10:30 pm

    … ' The theory of trickle down dates back to Milton Friedman and the Chicago School of Economics ' …

    Only very broadly , it actually goes back to the Austrian school of economics under Friedrich Hayek. From there, – it became the mainstay of American Lassez Faire. And precipitated the 1939 Great Depression.

    Modern neo liberalism had its origins in the Mont Pelerin society based in London. It was formed around the time Mao Zedong was gaining the upper hand in China, and designed as a bulwark against the spread of communism. It was so named because of its first meeting of bankers, economists, philosophers political leaders etc in the Swiss town under Mont (Mount ) Pelerin.

    Milton Friedman himself was a founding member of the Mont Pelerin society. That society , however , was founded by European aristocracy such as the Von Taxis early in the 20th century. Its goal was to produce a situation whereby there was a return to the 19th century ideals of 'borderless nations' , empire and the re- creation of a class of peasant workers and Lords who presided over them.

    New Right Fight – Who are the New Right?
    http://www.newrightfight.co.nz/pageA.html

    [deleted]

    ———————————————

    And if all that doesn't ring alarm bells, then I'm afraid you are beyond hope.

    [No idea why this was held up in the Moderation queue – Incognito]

    [I deleted the doubled up bit. – weka]

    • WILD KATIPO 10.1
      3 November 2019 at 10:41 pm

      ^^^^

      This website,… really…

      Gone downhill ever since it no longer accepts google etc… I deleted 10 copys of the same damn thing then ran out of time and then gave up. ffs.

      • Incognito 10.1.1
        3 November 2019 at 11:01 pm

        I don’t know what this is all about but I have approved a long comment of yours that was stuck in Auto-Moderation for some reason. Take a deep breath and chill out; there is already too much stress around.

  11. Jackel 11
    3 November 2019 at 10:42 pm

    Ah, the old trickle down argument, the wet dream of all wannabe Reagans. Give money to the rich and they'll go out and start building factories and other production means. This will increase employment meaning more jobs and therefore more taxes for the government. Unfortunately giving money to the laziest people in society, namely the wealthy, means all they do with that money is spend it creating asset bubbles in things like shares and housing etc. Even Reagan realised the flaws of this trickle down rubbish and increased taxes for the next seven years of his administration (believe it or not). The fundamental problem the global economy faces is a demand problem not a supply problem.

    • Dukeofurl 11.1
      4 November 2019 at 8:03 am

      Yes . The tax cuts for businesses didnt more jobs, investment in productivity or innovation- it meant bigger share buybacks and buyouts of other companies. Thats what boosts the share price more than anything, dividends hardly matter anymore as the tax has to be paid directly on that.

  12. greywarshark 12
    4 November 2019 at 12:21 pm

    Add to the way that trickle down mixed with laissez-faire ends up hurting the vulnerable is this story about postal scams and the elderly. It has been going on for years, rules that limited its scope were introduced in 2016. But those rules no longer are being applied, the Postal Workers Union National President says. If not – why not? 'In 2016, nearly 18,000 of the letters were intercepted. They were not being intercepted this year, he said.'

    https://www.rnz.co.nz/news/national/402464/scam-leaving-elderly-thousands-out-of-pocket-not-being-intercepted

    The trouble is – that NZs are too trusting. We were brought up to believe that we had a good honest system, and that bad politicians that cropped up, and sneaky officials double-dipping, would be weeded out. Many people have not caught up with the truth, that they are enriching themselves under a faulty, fraudulent, even criminal financial and economic system.

    The system is one that allows others to do business with us, knowing that they are operate under a fraudulent system. But this is publicly downplayed by those in power, and the historic system though tattered, is held up as apparently still functioning.

  13. Enough is Enough 13
    4 November 2019 at 1:05 pm

    MS, as probably the number cheerleader and supporter of this government, I presume you support 'trickle down' economics as, this Government has not done anything in two years (and don't appear to have any plans to do anything) that would fundamentally alter our tax structure. The same structure that has more or less been in place since a man called Roger, Rogered us.

    We can see the same old consequences in New Zealand with this policy as poverty has in fact increased over the past two years due to the government failure to address our inequitible system.

    Time for everyone who opposes 'trickle down' to demand more substantive change from this government. Simply being "not as bad as National' is waste of time if they don't do something soon.

  14. mosa 14
    5 November 2019 at 12:53 am

    Trump masquerading in 2016 as the one who was the " independent " Republican and who was going too deliver for all the forgotten Americans has simply used that support to cut the corporate tax rate which will continue too enrich people like Trump himself just goes too show how naive the average American voter is when it comes too supporting a billionaire for president and believing that Trump was going too do anything too address the serious inequities that exist for them and their families.

    Mind you " lock her up " had a certain ring too it.

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