Real Capitalism
2024-05-11 12:48:51 UTC
Some rightists believe that tax cuts for the wealthy will one day
eventually trickle down to their begging hands. It's another lie.
Trickle-down economics is a scam that ignores decades of evidence
By Jennifer Rubin
Columnist|
March 12, 2024 at 7:45 a.m. EDT
https://www.washingtonpost.com/opinions/2024/03/12/supply-side-economics-
scam/
Like climate change denial, the claimed economic benefits of tax cuts for
the rich dont hold up under scrutiny. When Democrats deride tax cuts for
the wealthiest as a budget buster and a vehicle for allowing the rich to
get richer, Republicans often reply: But look at the growth and jobs!
Actually, we have seen a steady stream of evidence debunking this
rationale.
Sign up for the Prompt 2024 newsletter for opinions on the biggest
questions in politics
The day after his State of the Union address, President Biden crowed about
another 275,000 jobs added to the economy in the month of February. Three
years ago, I inherited an economy on the brink. Now, our economy is the
envy of the world, he said in a written statement. We added 275,000 jobs
last month nearly 15 million since I took office. He concluded, Across
the country, the American people are writing the greatest comeback story
never told. The days of trickle-down are over.
Last July, NEC Director Lael Brainard laid out the overwhelming evidence
that trickle-down economics defined as cutting taxes for big
businesses and those at the top has been a bust.
Advertisement
Economic inequality increased, many communities suffered from sustained
disinvestment, and earnings growth for many Americans failed to keep pace
with the cost of necessities like health care, housing, and education, she
said. Investments in infrastructure and vital industries stagnated.
This isnt new evidence, either. A 2020 paper by David Hope of the London
School of Economics and Julian Limberg of Kings College London examined
18 developed countries from Australia to the United States over a 50-
year period from 1965 to 2015, CBS News reported. The study compared
countries that passed tax cuts in a specific year, such as the U.S. in 1982
when President Ronald Reagan slashed taxes on the wealthy, with those that
didnt, and then examined their economic outcomes. It turns out that per
capita gross domestic product and unemployment rates were nearly identical
after five years in countries that slashed taxes on the rich and in those
that didnt, the study found.
But there was one significant difference: The incomes of the rich grew
much faster in countries where tax rates were lowered. Instead of trickling
down to the middle class, tax cuts for the rich may not accomplish much
more than help the rich keep more of their riches and exacerbate income
inequality, the research indicates. Oops.
Advertisement
Well, what about the huge tax cuts passed by MAGA Republicans in 2017? Were
those any different? Mr. Trumps tax cuts have lifted the fortunes of the
ultra-rich, the report found. For the first time in a century, the 400
richest American families paid lower taxes in 2018 than people in the
middle class, the economists found.
But economic growth made up for this handout, right?! Not so fast. Wages
for average Americans did not keep up with the cost of living. Worse, Even
before the pandemic, income inequality had reached its highest point in 50
years, according to Census data, as CBS News reported. And, before Biden
came into office, income inequality worsened as the pandemic hurt the less-
well-off more severely than it did the rich.
A 2022 update by Hope and Limberg reiterated, Our findings on the effects
of growth and unemployment provide evidence against supply side theories
that suggest lower taxes on the rich will induce labor supply responses
from high-income individuals (more hours of work, more effort, etc.) that
boost economic activity. Instead, they confirmed there is strong evidence
that cutting taxes on the rich increases income inequality but has no
effect on growth or unemployment.
Advertisement
Given that experience, Biden entered office determined to deploy targeted
investments (e.g., infrastructure, chip manufacturing), tailored tax
increases on rich individuals and corporations that had been paying no
taxes, cost controls on items such as prescription drug prices, and
expansion of the Affordable Care Act. Robust immigration and energy
production further boosted growth. Biden also canceled billions in student
loan debt, freeing up consumer spending. The result has been a record
recovery from the pandemic and real wage growth adjusted for inflation.
The chair of the Council of Economic Advisers, Jared Bernstein, told me
after the State of the Union: Theres a solid, empirical body of research
confirming this. Tax cuts for the rich just make them richer, exacerbating
both the deficit and economic inequality.
One type of tax credit has worked spectacularly well. The 2021 expansion
of the Child Tax Credit (CTC) led to a historic reduction in poverty in the
United States, particularly for children. Research showed that child
poverty fell immediately and substantially, the Brookings Institution
reported last year. On an annual basis, according to the U.S. Census
Bureau, child poverty fell to its lowest level on record in 2021: 5.2%.
Advertisement
Biden now proposes a tax increase for billionaires. There are 1,000
billionaires in America, he told the country during the State of the
Union. You know what the average federal tax rate for these billionaires
is? 8.2 percent! He argued, No billionaire should pay a lower tax rate
than a teacher, a sanitation worker, a nurse! Thats why Ive proposed a
minimum tax of 25 percent for billionaires. Just 25 percent.
There is no evidence that doing this would impair the economic recovery
Biden has presided over. It, however, would help pare down the deficit
(something Republicans used to pretend to care about).
Sold as a prosperity booster, trickle-down tax cuts for the very rich do
not increase prosperity, growth or employment for the average American.
This sop to the rich does increase the deficit and income disparity. By
contrast, restoring the child tax credit and enacting a billionaires tax
would continue to narrow the gulf between the very rich and everyone else.
Trickle-down economics is a scam. Renewing tax cuts for the rich that are
due to expire at the end of 2025 would do about as much for you as a degree
from Trump University.
eventually trickle down to their begging hands. It's another lie.
Trickle-down economics is a scam that ignores decades of evidence
By Jennifer Rubin
Columnist|
March 12, 2024 at 7:45 a.m. EDT
https://www.washingtonpost.com/opinions/2024/03/12/supply-side-economics-
scam/
Like climate change denial, the claimed economic benefits of tax cuts for
the rich dont hold up under scrutiny. When Democrats deride tax cuts for
the wealthiest as a budget buster and a vehicle for allowing the rich to
get richer, Republicans often reply: But look at the growth and jobs!
Actually, we have seen a steady stream of evidence debunking this
rationale.
Sign up for the Prompt 2024 newsletter for opinions on the biggest
questions in politics
The day after his State of the Union address, President Biden crowed about
another 275,000 jobs added to the economy in the month of February. Three
years ago, I inherited an economy on the brink. Now, our economy is the
envy of the world, he said in a written statement. We added 275,000 jobs
last month nearly 15 million since I took office. He concluded, Across
the country, the American people are writing the greatest comeback story
never told. The days of trickle-down are over.
Last July, NEC Director Lael Brainard laid out the overwhelming evidence
that trickle-down economics defined as cutting taxes for big
businesses and those at the top has been a bust.
Advertisement
Economic inequality increased, many communities suffered from sustained
disinvestment, and earnings growth for many Americans failed to keep pace
with the cost of necessities like health care, housing, and education, she
said. Investments in infrastructure and vital industries stagnated.
This isnt new evidence, either. A 2020 paper by David Hope of the London
School of Economics and Julian Limberg of Kings College London examined
18 developed countries from Australia to the United States over a 50-
year period from 1965 to 2015, CBS News reported. The study compared
countries that passed tax cuts in a specific year, such as the U.S. in 1982
when President Ronald Reagan slashed taxes on the wealthy, with those that
didnt, and then examined their economic outcomes. It turns out that per
capita gross domestic product and unemployment rates were nearly identical
after five years in countries that slashed taxes on the rich and in those
that didnt, the study found.
But there was one significant difference: The incomes of the rich grew
much faster in countries where tax rates were lowered. Instead of trickling
down to the middle class, tax cuts for the rich may not accomplish much
more than help the rich keep more of their riches and exacerbate income
inequality, the research indicates. Oops.
Advertisement
Well, what about the huge tax cuts passed by MAGA Republicans in 2017? Were
those any different? Mr. Trumps tax cuts have lifted the fortunes of the
ultra-rich, the report found. For the first time in a century, the 400
richest American families paid lower taxes in 2018 than people in the
middle class, the economists found.
But economic growth made up for this handout, right?! Not so fast. Wages
for average Americans did not keep up with the cost of living. Worse, Even
before the pandemic, income inequality had reached its highest point in 50
years, according to Census data, as CBS News reported. And, before Biden
came into office, income inequality worsened as the pandemic hurt the less-
well-off more severely than it did the rich.
A 2022 update by Hope and Limberg reiterated, Our findings on the effects
of growth and unemployment provide evidence against supply side theories
that suggest lower taxes on the rich will induce labor supply responses
from high-income individuals (more hours of work, more effort, etc.) that
boost economic activity. Instead, they confirmed there is strong evidence
that cutting taxes on the rich increases income inequality but has no
effect on growth or unemployment.
Advertisement
Given that experience, Biden entered office determined to deploy targeted
investments (e.g., infrastructure, chip manufacturing), tailored tax
increases on rich individuals and corporations that had been paying no
taxes, cost controls on items such as prescription drug prices, and
expansion of the Affordable Care Act. Robust immigration and energy
production further boosted growth. Biden also canceled billions in student
loan debt, freeing up consumer spending. The result has been a record
recovery from the pandemic and real wage growth adjusted for inflation.
The chair of the Council of Economic Advisers, Jared Bernstein, told me
after the State of the Union: Theres a solid, empirical body of research
confirming this. Tax cuts for the rich just make them richer, exacerbating
both the deficit and economic inequality.
One type of tax credit has worked spectacularly well. The 2021 expansion
of the Child Tax Credit (CTC) led to a historic reduction in poverty in the
United States, particularly for children. Research showed that child
poverty fell immediately and substantially, the Brookings Institution
reported last year. On an annual basis, according to the U.S. Census
Bureau, child poverty fell to its lowest level on record in 2021: 5.2%.
Advertisement
Biden now proposes a tax increase for billionaires. There are 1,000
billionaires in America, he told the country during the State of the
Union. You know what the average federal tax rate for these billionaires
is? 8.2 percent! He argued, No billionaire should pay a lower tax rate
than a teacher, a sanitation worker, a nurse! Thats why Ive proposed a
minimum tax of 25 percent for billionaires. Just 25 percent.
There is no evidence that doing this would impair the economic recovery
Biden has presided over. It, however, would help pare down the deficit
(something Republicans used to pretend to care about).
Sold as a prosperity booster, trickle-down tax cuts for the very rich do
not increase prosperity, growth or employment for the average American.
This sop to the rich does increase the deficit and income disparity. By
contrast, restoring the child tax credit and enacting a billionaires tax
would continue to narrow the gulf between the very rich and everyone else.
Trickle-down economics is a scam. Renewing tax cuts for the rich that are
due to expire at the end of 2025 would do about as much for you as a degree
from Trump University.