![President Ronald Reagan addresses the nation from the Oval Office on tax reduction legislation](https://upload.wikimedia.org/wikipedia/commons/6/68/President_Ronald_Reagan_addresses_the_nation_from_the_Oval_Office_on_tax_reduction_legislation.jpg)
Trickle-down economics is a term used in critical references to economic policies that favor the upper income brackets, corporations, and individuals with substantial wealth or capital.
In recent history, the term has been used by critics of
supply-side economics
Supply-side economics is a macroeconomic theory that postulates economic growth can be most effectively fostered by lowering taxes, decreasing regulation, and allowing free trade. According to supply-side economics, consumers will benefit fr ...
. Whereas general supply-side theory favors lowering taxes overall, trickle-down theory more specifically advocates for a lower tax burden on the upper end of the
economic spectrum
A social class is a grouping of people into a set of hierarchical social categories, the most common being the upper, middle and lower classes. Membership in a social class can for example be dependent on education, wealth, occupation, inco ...
.
Major examples of US Republicans supporting what critics call "trickle-down economics" include the
Reagan tax cuts The phrase Reagan tax cuts refers to changes to the United States federal tax code passed during the presidency of Ronald Reagan. There were two major tax cuts: The Economic Recovery Tax Act of 1981 and the Tax Reform Act of 1986. The tax cuts pop ...
, the
Bush tax cuts and the
Tax Cuts and Jobs Act of 2017. In each of the aforementioned tax reforms, taxes were cut across all income brackets, but the biggest reductions were given to the highest income earners, although the
Reagan Era tax reforms also introduced the
earned income tax credit
The United States federal earned income tax credit or earned income credit (EITC or EIC) is a refundable tax credit for low- to moderate-income working individuals and couples, particularly those with children. The amount of EITC benefit depends ...
which has received bipartisan praise for poverty reduction and is largely why the bottom half of workers pay no federal income tax. Similarly, the Tax Cuts and Jobs Act of 2017 cut taxes across all income brackets, but especially favored the wealthy.
The term "trickle-down" originated as a joke by humorist
Will Rogers
William Penn Adair Rogers (November 4, 1879 – August 15, 1935) was an American vaudeville performer, actor, and humorous social commentator. He was born as a citizen of the Cherokee Nation, in the Indian Territory (now part of Oklahoma ...
and today is often used to criticize economic policies that favor the wealthy or privileged while being framed as good for the average citizen.
David Stockman,
Ronald Reagan
Ronald Wilson Reagan ( ; February 6, 1911June 5, 2004) was an American politician, actor, and union leader who served as the 40th president of the United States from 1981 to 1989. He also served as the 33rd governor of California from 1967 ...
's former budget director, championed
Reagan's tax cuts at first, but later became critical of them and told journalist
William Greider
William Harold Greider (August 6, 1936 – December 25, 2019) was an American journalist and author who wrote primarily about economics.
Early life and education
Greider was born in Cincinnati, Ohio on August 6, 1936, to Harold William Greider ...
that "supply-side economics" is the trickle-down idea:
["The Education of David Stockman"]
by William Greider
Political opponents of the
Reagan administration soon seized on this language in an effort to brand the administration as caring only about the wealthy.
Some studies suggest a link between trickle-down economics and reduced growth, and some newspapers concluded that trickle-down economics does not promote jobs or growth, and that "policy makers shouldn't worry that raising taxes on the rich ... will harm their economies".
History
In 1896, Democratic presidential candidate
A candidate, or nominee, is the prospective recipient of an award or honor, or a person seeking or being considered for some kind of position; for example:
* to be elected to an office — in this case a candidate selection procedure occurs.
* t ...
William Jennings Bryan
William Jennings Bryan (March 19, 1860 – July 26, 1925) was an American lawyer, orator and politician. Beginning in 1896, he emerged as a dominant force in the History of the Democratic Party (United States), Democratic Party, running ...
described the concept using the metaphor of a "leak" in his
Humorist Will Rogers jokingly advised in a 1932 column:
William J. Bennett
William John Bennett (born July 31, 1943) is an American conservatism, conservative politician and Political commentary, political commentator who served as United States Secretary of Education, secretary of education from 1985 to 1988 under Pres ...
wrote:
Presidential speechwriter Samuel Rosenman
Samuel Irving Rosenman (February 13, 1896 – June 24, 1973) was an American lawyer, judge, Democratic Party activist and presidential speechwriter. He coined the term "New Deal", and helped articulate liberal policies during the heyday of the N ...
wrote:
The ''Merriam-Webster Dictionary
''Webster's Dictionary'' is any of the English language dictionaries edited in the early 19th century by American lexicographer Noah Webster (1758–1843), as well as numerous related or unrelated dictionaries that have adopted the Webster's ...
'' notes that the first known use of "trickle-down" as an adjective
In linguistics, an adjective (list of glossing abbreviations, abbreviated ) is a word that generally grammatical modifier, modifies a noun or noun phrase or describes its referent. Its semantic role is to change information given by the noun.
Tra ...
meaning "relating to or working on the principle of trickle-down theory" was in 1944 while the first known use of "trickle-down theory" was in 1954.
After leaving the presidency
A presidency is an administration or the executive, the collective administrative and governmental entity that exists around an office of president of a state or nation. Although often the executive branch of government, and often personified by a ...
, Democrat Lyndon B. Johnson alleged "Republicans
Republican can refer to:
Political ideology
* An advocate of a republic, a type of government that is not a monarchy or dictatorship, and is usually associated with the rule of law.
** Republicanism, the ideology in support of republics or agains ...
... simply don't know how to manage the economy. They're so busy operating the trickle-down theory, giving the richest corporations the biggest break, that the whole thing goes to hell in a handbasket "Going to hell in a handbasket", "going to hell in a handcart", "going to hell in a handbag", "go to hell in a bucket", "sending something to hell in a handbasket" and "something being like hell in a handbasket" are variations on an allegorical loc ...
."
Economist Thomas Sowell consistently argues that trickle-down economics has never been advocated by any economist, writing in his 2012 book "Trickle Down"
Theory and "Tax Cuts for the Rich":
Sowell has also written extensively on trickle-down economics and opposes its characterization firmly, citing that supply-side economics has never claimed to work in a "trickle-down" fashion. Rather, the economic theory of reducing marginal tax rates works in precisely the opposite direction: "Workers are always paid first and then profits flow upward later – if at all."
Usage
In a study of "zombie ideas", political scientists Brainard Guy Peters and Maximilian Lennart Nagel describe trickle-down economics as the most enduring "zombie idea" in American politics. By zombie idea, they refer to ideas which have been unsuccessful at achieving intended goals, yet still survived in public policy discourse.
Economics
The economist John Kenneth Galbraith noted that "trickle-down economics" had been tried before in the United States in the 1890s under the name "horse-and-sparrow theory", writing:
Galbraith theorized that the horse-and-sparrow theory was partly to blame for the Panic of 1896
The Panic of 1896 was an acute economic depression in the United States that was less serious than other panics of the era, precipitated by a drop in silver reserves, and market concerns on the effects it would have on the gold standard. Deflatio ...
.[Galbraith, John Kenneth (February 4, 1982]
"Recession Economics"
. '' New York Review of Books'' Volume 29, Number 1.
In 2016, Nobel laureate Joseph Stiglitz
Joseph Eugene Stiglitz (; born February 9, 1943) is an American New Keynesian economist, a public policy analyst, and a full professor at Columbia University. He is a recipient of the Nobel Memorial Prize in Economic Sciences (2001) and the Joh ...
wrote that the post-World War II evidence does not support trickle-down economics, but rather "trickle-up economics" whereby more money in the pockets of the poor or the middle benefits everyone.
A 2020 piece by the Washington Post
''The Washington Post'' (also known as the ''Post'' and, informally, ''WaPo'') is an American daily newspaper published in Washington, D.C. It is the most widely circulated newspaper within the Washington metropolitan area and has a large nati ...
finds that trickle-down economics succeeds only at making the rich gain more wealth
all with no value overall to the economy; From data spanning 50 years from 18 countries.
A 2022 review of 18 countries' tax policies between 1965 and 2015 found no evidence that tax cuts for the rich trickled down to bolster the economy as a whole.
While the term "trickle-down" is commonly used to refer to income benefits, it is sometimes used to refer to the idea of positive externalities
In economics, an externality or external cost is an indirect cost or benefit to an uninvolved third party that arises as an effect of another party's (or parties') activity. Externalities can be considered as unpriced goods involved in either co ...
arising from technological innovation or increased trade. Arthur Okun
Arthur Melvin "Art" Okun (November 28, 1928 – March 23, 1980) was an American economist. He served as the chairman of the Council of Economic Advisers between 1968 and 1969. Before serving on the C.E.A., he was a professor at Yale University an ...
, and separately William Baumol
William Jack Baumol (February 26, 1922 – May 4, 2017) was an American economist. He was a professor of economics at New York University, Academic Director of the Berkley Center for Entrepreneurship and Innovation, and Professor Emeritus at Prin ...
, for example, have used the term to refer to the flow of the benefits of innovation, which do not accrue entirely to the "great entrepreneurs and inventors", but trickle down to the masses. And Nobel laureate economist Paul Romer
Paul Michael Romer (born November 6, 1955) is an American economist and policy entrepreneur who is a University Professor in Economics at New York University. Romer is best known as the former Chief Economist of the World Bank and for co-recei ...
used the term in reference to the impact on wealth from tariff changes.
Politics
Speaking on the Senate
A senate is a deliberative assembly, often the upper house or chamber of a bicameral legislature. The name comes from the ancient Roman Senate (Latin: ''Senatus''), so-called as an assembly of the senior (Latin: ''senex'' meaning "the el ...
floor in 1992, Hank Brown (Republican senator for Colorado) said: "Mr. President, the trickle-down theory attributed to the Republican Party has never been articulated by President Reagan and has never been articulated by President Bush and has never been advocated by either one of them. One might argue whether trickle-down makes any sense or not. To attribute to people who have advocated the opposite in policies is not only inaccurate but poisons the debate on public issues."
While running against Ronald Reagan
Ronald Wilson Reagan ( ; February 6, 1911June 5, 2004) was an American politician, actor, and union leader who served as the 40th president of the United States from 1981 to 1989. He also served as the 33rd governor of California from 1967 ...
for the Presidential nomination in 1980, George H. W. Bush
George Herbert Walker BushSince around 2000, he has been usually called George H. W. Bush, Bush Senior, Bush 41 or Bush the Elder to distinguish him from his eldest son, George W. Bush, who served as the 43rd president from 2001 to 2009; pr ...
had derided the trickle-down approach as "voodoo economics". In the 1992 presidential election, independent
Independent or Independents may refer to:
Arts, entertainment, and media Artist groups
* Independents (artist group), a group of modernist painters based in the New Hope, Pennsylvania, area of the United States during the early 1930s
* Independ ...
candidate Ross Perot
Henry Ross Perot (; June 27, 1930 – July 9, 2019) was an American business magnate, billionaire, politician and philanthropist. He was the founder and chief executive officer of Electronic Data Systems and Perot Systems. He ran an inde ...
also referred to trickle-down economics as "political voodoo". In the same election during a presidential town hall debate, Bill Clinton
William Jefferson Clinton ( né Blythe III; born August 19, 1946) is an American politician who served as the 42nd president of the United States from 1993 to 2001. He previously served as governor of Arkansas from 1979 to 1981 and agai ...
said:
The political campaign group, Tax Justice Network has used the term referring broadly to wealth inequality in its criticisms of tax havens
A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, or n ...
.
In 2013, Pope Francis
Pope Francis ( la, Franciscus; it, Francesco; es, link=, Francisco; born Jorge Mario Bergoglio, 17 December 1936) is the head of the Catholic Church. He has been the bishop of Rome and sovereign of the Vatican City State since 13 March 2013. ...
referred to "trickle-down theories" in his apostolic exhortation with the following statement (No. 54):
In New Zealand, Damien O'Connor
Damien Peter O'Connor (born 16 January 1958) is a New Zealand Labour Party politician who currently serves as Minister of Agriculture, Minister for Biosecurity, Minister for Trade and Export Growth, Minister for Land Information and Minister ...
, an MP from the Labour Party, called trickle-down economics "the rich pissing on the poor" in the Labour Party campaign launch video for the 2011 general election. In a 2016 presidential candidates debate, Hillary Clinton
Hillary Diane Rodham Clinton ( Rodham; born October 26, 1947) is an American politician, diplomat, and former lawyer who served as the 67th United States Secretary of State for President Barack Obama from 2009 to 2013, as a United States sen ...
accused Donald Trump
Donald John Trump (born June 14, 1946) is an American politician, media personality, and businessman who served as the 45th president of the United States from 2017 to 2021.
Trump graduated from the Wharton School of the University of Pe ...
of supporting the "most extreme" version of trickle-down economics with his tax plan, calling it "trumped-up trickle-down" as a pun on his name. In his speech to a joint session of Congress on April 28, 2021, US President
The president of the United States (POTUS) is the head of state and head of government of the United States of America. The president directs the executive branch of the federal government and is the commander-in-chief of the United Stat ...
Joe Biden stated that "trickle-down economics has never worked". Biden has continued to be critical of trickle-down.
See also
* A rising tide lifts all boats
"A rising tide lifts all boats" is an aphorism associated with the idea that an improved economy will benefit all participants and that economic policy, particularly government economic policy, should therefore focus on broad economic efforts.
O ...
* Austerity
Austerity is a set of political-economic policies that aim to reduce government budget deficits through spending cuts, tax increases, or a combination of both. There are three primary types of austerity measures: higher taxes to fund spend ...
(21st century economic meaning)
* Classical economics
Classical economics, classical political economy, or Smithian economics is a school of thought in political economy that flourished, primarily in Britain, in the late 18th and early-to-mid 19th century. Its main thinkers are held to be Adam Smith ...
* Economic inequality
There are wide varieties of economic inequality, most notably income inequality measured using the distribution of income (the amount of money people are paid) and wealth inequality measured using the distribution of wealth (the amount of we ...
* Keynesian economics
Keynesian economics ( ; sometimes Keynesianism, named after British economist John Maynard Keynes) are the various macroeconomic theories and models of how aggregate demand (total spending in the economy) strongly influences economic output an ...
* Laffer curve
In economics, the Laffer curve illustrates a theoretical relationship between rates of taxation and the resulting levels of the government's tax revenue. The Laffer curve assumes that no tax revenue is raised at the extreme tax rates of 0% and ...
* Matthew effect
The Matthew effect of accumulated advantage, Matthew principle, or Matthew effect, is the tendency of individuals to accrue social or economic success in proportion to their initial level of popularity, friends, wealth, etc. It is sometimes summar ...
* Neoclassical economics
Neoclassical economics is an approach to economics in which the production, consumption and valuation (pricing) of goods and services are observed as driven by the supply and demand model. According to this line of thought, the value of a good ...
* Neoliberalism
Neoliberalism (also neo-liberalism) is a term used to signify the late 20th century political reappearance of 19th-century ideas associated with free-market capitalism after it fell into decline following the Second World War. A prominent fa ...
* Palace economy
A palace economy or redistribution economy is a system of economic organization in which a substantial share of the wealth flows into the control of a centralized administration, the palace, and out from there to the general population. In turn ...
* Post-scarcity economy
* Progressive tax
* Reaganomics
Reaganomics (; a portmanteau of ''Reagan'' and ''economics'' attributed to Paul Harvey), or Reaganism, refers to the neoliberal economic policies promoted by U.S. President Ronald Reagan during the 1980s. These policies are commonly associat ...
* Thatcherism
* Trickle-up effect
The trickle-up effect or trickle-up economics is an economic policy proposition that final demand among a broad population can stimulate national income in an economy. The trickle-up effect states that policies that directly benefit lower income in ...
* Trussonomics
Liz Truss's term as the prime minister of the United Kingdom began on 6 September 2022 when she accepted an invitation of Queen Elizabeth II to form a government, following the resignation of her predecessor Boris Johnson after a government c ...
References
* Mkilema, F. (2018). Trickle down economics Vs. Middle-out economics
Further reading
*
* Gerald Marvin Meier, Joseph E. Stiglitz (2001)
Frontiers of Development Economics: The Future in Perspective
' p. 422.
* Karla Hoff and Joseph E. Stiglitz (1998) ''Adverse Selection and Institutional Adaptation'' – Department of Economics Working Paper Series/University of Maryland, College Park, Dept. of Economics; no. 98–102.
*
* Randy P. Albelda, June Lapidus, Elaine McCrate and Edwin Melendez (1988)
''Mink Coats Don't Trickle Down: The Economic Attack on Women and People of Color''
.
* “Reaganomics: A Watershed Momen
Reaganomics A Watershed Moment on the Road to Trumpism.pdf
" The Economists’ Voice, 2019, 16: 1.
External links
* John Miller
* {{cite news , url=https://www.nytimes.com/2007/04/12/business/12scene.html, work=The New York Times
''The New York Times'' (''the Times'', ''NYT'', or the Gray Lady) is a daily newspaper based in New York City with a worldwide readership reported in 2020 to comprise a declining 840,000 paid print subscribers, and a growing 6 million paid ...
, title=In the Real World of Work and Wages, Trickle-Down Theories Don't Hold Up , first=Robert , last=Frank, date=April 12, 2007, access-date=March 5, 2008
"Trickle-down economics is the greatest broken promise of our lifetime"
(January 20, 2014). ''The Guardian
''The Guardian'' is a British daily newspaper. It was founded in 1821 as ''The Manchester Guardian'', and changed its name in 1959. Along with its sister papers ''The Observer'' and ''The Guardian Weekly'', ''The Guardian'' is part of the Gu ...
''.
* “Reaganomics: A Watershed Moment,” The Economists’ Voice, 2019, 16: 1, Jan 12.Reaganomics A Watershed Moment on the Road to Trumpism.pdf
ref>
(June 15, 2015). CNNMoney
CNN Business (formerly CNN Money) is a financial news and information website, operated by CNN. The website was originally formed as a joint venture between CNN.com and Time Warner's ''Fortune'' and ''Money'' magazines. Since the spin-off of Time ...
.
1930s neologisms
Economic ideologies
Neoliberalism
Political terminology of the United States
Satire
Reagan Era