top of page

RE-THINKING MONEY, RELIGION & POLITICS

Sound fun? Join in!

Search

Trickle-Down Economics: The Stream Was Always Dry

A 2021 Ipsos survey asked 1,000 Americans to agree or disagree with this statement: "Trickle-down economics have never worked in America." Of those surveyed, 51% overall agreed, with 66% of Democrats and 43% of Independents assenting. The surprise take away from the survey was that 43% of Republicans surveyed also agreed. This is a rather astonishing number, given that party's continued support of this strategy, as evidenced by the the 2017 Tax Cut and Jobs Act, which permanently cut the corporate tax rate from 35% to 21% and benefited the wealthiest 1% of taxpayer by capping their taxes at 37%.



Before we get into other particulars, a solid definition of trickle-down economics is in order. This economic theory assumes that "applying special tax cuts to the rich and wealthy as well as bigger corporations will benefit society by later affecting everyone else. This model states that the application of income and capital tax cuts or the addition of other financial benefits to big corporations and large investors will alter the economic growth of a nation positively. It focuses on the belief that economic growth is most likely propelled by entities with the biggest resources and skills, and in a case where this growth is achieved, the community benefits."


This theory has been implemented three times over the past 40 years through major policy decisions during the Reagan, George W. Bush, and Trump administrations, providing ample time and examples to see if this approach truly benefits everyone. While there are both critics and supporters of this strategy, the most logical way to see its affects is to actually analyze the data.


A 2020 study by the London School of Economics provides the most comprehensive answer to date. David Hope and Julian Limberg, economics professors at King's College in London, studied the effects of trickle-down (sometimes called supply-side) economics on 18 countries over the past 50 years, including the United States. The economy of each country was studied for the five years following legislation that installed trickle-down economic policies into its respective tax code.


The study looked at income inequality, economic growth, and unemployment. Hope and Limberg also combined all relevant taxes into a single measure, which "provides a more complete picture of taxes on the rich, and also allows for comparisons across countries and over time.” Their conclusion was that trickle-down economics consistently benefited the wealthy, while having no meaningful affect on unemployment and economic growth.


Do income trends in the US support this study? Let's take a look at some recent statistics about the top 1% of earners:

  • The top 1% owned a record 32.3% of the nation’s wealth as of the end of 2021, data show. In comparison, the share of wealth held by the bottom 90% of Americans has declined slightly since before the pandemic, from 30.5% to 30.2%.

  • The stock portfolios of the top 1% are now worth $23 trillion, and they own a record 53.9% of individually held shares, according to the central bank.

  • Since 2020, the richest 1% have captured almost two-thirds of all new wealth.

  • America’s 664 billionaires have added $1.3 trillion to their collective wealth and now own over $4 trillion. That’s almost double the wealth of the bottom half — 165 million Americans.

Likewise, corporations have also been big winners over the past four decades, especially recently:

Spotlighting these numbers might simply seem like a form of economic envy. And it might be, if everyone paid their fair share of taxes. Unfortunately, the current climate favors the super wealthy on that side as well:

  • According to a 2021 analysis from OMB-CEA economists, the wealthiest 400 billionaire families in the US paid an average federal individual tax rate of just 8.2 percent. For comparison, the average American taxpayer in the same year paid 13 percent.

  • According to leaked tax returns highlighted in a ProPublica investigation, the 25 richest Americans paid $13.6 billion in taxes from 2014-2018—a “true” tax rate of just 3.4 percent on $401 billion of income.

  • According to a study by the Institute on Taxation and Economic Policy, at least 55 of the largest corporations in America paid no federal corporate income taxes in 2020.

  • The US government is estimated to have lost around $135 billion in revenue due to corporate tax avoidance in 2017. In contrast, corporate philanthropy has amounted to less than $20 billion a year.

Though trickle-down economics' stated end goal is mutual benefit, the evidence clearly does not support that result. After decades of experiencing its actual effects, more people are realizing this fact, including Bruce Bartlett, who helped to draft the Kemp-Roth tax bill of 1981 but later went on to write The New American Economy: The Failure of Reaganomics and a New Way Forward. His conclusion is that supply-side/trickle-down economics is not suited to contemporary conditions.


What can be done about this trickle-down error to begin turning America’s economically unstable and unsustainable trajectory around? Plenty! All of us can begin with educating ourselves and others with supportable facts and evidence like we provide here, initiating persistent lobbying on the part of concerned constituents, and making courageous choices. Ultimately, it will take business and political leaders of integrity to act in the economic interests of our society as a whole, even in the face of fierce opposition by those who want to continue benefiting from the current state of affairs.


This turnaround could be daunting, but it is not unachievable. Nothing is undoable, as demonstrated by America’s history of successful reforms, including the end of legalized slavery, the establishment of national parks, ensuring that women have the right to vote, the enactment of anti-trust laws, civil rights legislation, and many, many more. With its many freedoms, America is an incredible society. With its many freedoms, capitalism is an incredible economic system. Freedom, however, comes with responsibility. We owe it to each other, our economic system, and our society to use our freedoms responsibly and for the benefit of as many of us as possible, and not in the service of just a few.


What about you? Share your story, question, comment, idea, disagreement -- yes, we welcome disagreement for the sake of mutual benefit! -- with us at blog@PartnershipEconomics.com. We will give a thoughtful response.


Our Amazon #1 New Release Book (2021) and Kindle #1 in Law Ethics & Professional Responsibility (2022): Unleash more with Better Capitalism: Jesus, Adam Smith, Ayn Rand, & MLK Jr. on Moving from Plantation to Partnership Economics.


Buy now, or get a free sample here >>


Go to the next level: Free 30-minute call to assess the mutual benefit of consulting based on Better Capitalism™ Ethics.




bottom of page