Trickle-down Economics

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. 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.

Major examples of US Republicans supporting what critics call "trickle-down economics" include the Reagan tax cuts, 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 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 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's former budget director, championed Reagan's tax cuts at first, but later became critical of them and told journalist 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 William Jennings Bryan described the concept using the metaphor of a "leak" in his

Humorist Will Rogers jokingly advised in a 1932 column:

William J. Bennett wrote:

Presidential speechwriter Samuel Rosenman wrote:

The ''Merriam-Webster Dictionary'' notes that the first known use of "trickle-down" as an adjective 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, Democrat Lyndon B. Johnson alleged " Republicans ... 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."

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.Galbraith, John Kenneth (February 4, 1982
"Recession Economics"
. ''New York Review of Books'' Volume 29, Number 1.

In 2016, Nobel laureate Joseph Stiglitz 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 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 arising from technological innovation or increased trade. Arthur Okun, and separately William Baumol, 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 used the term in reference to the impact on wealth from tariff changes.

Politics

Speaking on the Senate 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 for the Presidential nomination in 1980, George H. W. Bush had derided the trickle-down approach as "voodoo economics". In the 1992 presidential election, independent candidate Ross Perot also referred to trickle-down economics as "political voodoo". In the same election during a presidential town hall debate, Bill Clinton said:

The political campaign group, Tax Justice Network has used the term referring broadly to wealth inequality in its criticisms of tax havens.

In 2013, Pope Francis referred to "trickle-down theories" in his apostolic exhortation with the following statement (No. 54):

In New Zealand, Damien O'Connor, 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 accused Donald Trump 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 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
* Austerity (21st century economic meaning)
* Classical economics
* Economic inequality
* Keynesian economics
* Laffer curve
* Matthew effect
* Neoclassical economics
* Neoliberalism
* Palace economy
* Post-scarcity economy
* Progressive tax
* Reaganomics
* Thatcherism
* Trickle-up effect
* Trussonomics

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 , 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''.
* “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.

1930s neologisms
Economic ideologies
Neoliberalism
Political terminology of the United States
Satire
Reagan Era