View Single Post
Old 10-28-2017, 03:15 PM   #51
detbuch
Registered User
 
Join Date: Feb 2009
Posts: 7,688
WDMSO--from your article:
Definition: Trickle-down economics is a theory that says benefits for the wealthy trickle down to everyone else. These benefits are usually tax cuts on businesses, high-income earners capital gains and dividends.


It is not an actual economic theory. Sowell, if you read the article I posted, said "No such theory has been found in even the most voluminous and learned histories of economic theories, Including J. A. Schumpeter's monumental 1260 page History of Economic Analysis. Yet this non-existent theory has become the object of denunciations from the pages of the New York Times and the Washington Post to the political arena. It has been attacked by Professor Paul Krugman of Princeton, and Professor Peter Corning of Stanford, among others, and similar attacks have been repeated as far away as India. It is a classic example of arguing against a caricature instead of confronting the argument actually made."

Further from your article:
Trickle-down economics assumes investors, savers and company owners are the real drivers of growth (they are real drivers, not the only drivers). It assumes they’ll use any extra cash from tax cuts to expand businesses. Investors will buy more companies or stocks. Banks will increase business lending. Owners will invest in their operations and hire workers. The theory says these workers will spend their wages, driving demand and economic growth.

This caricature, not theory, oversimplifies what is assumed. The reason tax RATES were originally lowered under Coolidge was because the rates were so high that it was more profitable for investors and businesses to put money into tax shelters. The assumption was that lowering tax rates would encourage the money holders to return to making profit by spending on those things that grow business rather than sheltering the money for dividends and tax evasion. When such tax cuts under Coolidge, Kennedy, Reagan, and Bush were made, less money was put into tax shelters and was spent on business growth, and the economy did expand and the federal government actually received greater tax income. Saying that the results might have been because of other factors, therefor merely coincidental, is not convincing when the result occurred every time the tax rates were lowered.


Further from your article:
Trickle-down economic theory is similar to supply-side economics. That theory states that all tax cuts, whether for businesses or workers, spur economic growth. Trickle-down theory is more specific. It says targeted tax cuts work better than general ones.

Wait . . . I thought that "targeted tax cuts" are what Progressive economists like. Oh, that's right, they are the true believers in trickle down, government trickle down economics--from government to the masses.


Further from your article:
It [trickle down] advocates cuts to corporations, capital gains and savings taxes. It doesn't promote across-the-board tax cuts. Instead, the tax cuts go to the wealthy.

But Trump's, and Bush's, and Reagan's tax cuts were across-the-board cuts. So they must not be considered trickle down. Your article is very confusing.


Further from your article:
Did It Work?
During the Reagan Administration, it seemed like trickle-down economics worked.

But it wasn't trickle down. It was across-the-board tax cuts.

His policies, known as Reaganomics, helped end the 1980 recession.

Trickle-down economics was not the only (Oh, "not the only"--so it was part of the equation?) reason for the recovery, though. Reagan also increased government spending by 2.5 percent a year.
That almost tripled the federal debt. It grew from $997 billion in 1981 to $2.85 trillion in 1989. Most of the new spending went to defense. It supported Reagan's successful efforts to end the Cold War and bring down the Soviet Union. Trickle-down economics, in its pure form, was never tested. (Because there is no such theory of economics. It doesn't exist.) It's just as likely that massive government spending ended the recession.

Every time the rates were lowered, economy was spurred. But not every time massive government spending occurred (without tax cuts) did the economy respond--at best it remained stagnant as in Obama. Or worse as in Franklin Roosevelt. So why is it just as likely that massive government spending ended the recession? What historical evidence is there for such a "just as likely" scenario?

Further from your article:
President George W. Bush used trickle-down theory to address the 2001 recession. He cut income taxes with EGTRRA. That ended the recession by November of that year.
But unemployment rose to 6 percent. That often occurs, because unemployment is a lagging indicator.

It takes time for companies to start hiring again, even after a recession has ended. Nevertheless, Bush cut business taxes with JGTRRA in 2003.
It appeared that the tax cuts worked. But, at the same time, the Federal Reserve lowered the fed funds rate. It fell from 6 percent to 1 percent. It's unclear . . .

If it's unclear, what is the argument against tax cuts? And your author admits that the initial Bush tax cuts ended the recession by November, and that the rise to 6% unemployment was the result of the past recession--it was a lagging indicator.


. . . whether tax cuts or another monetary policy caused the recovery.

If the other monetary policy is low fed rates, then why did the economy resist recovering under Obama's several years of extremely low Federal Reserve rates? Again, where is the empirical, historical evidence that low fed rates are the cause of economic recovery?

Further from your article:
Trickle-down economics says that Reagan's lower tax rates should have helped people in all income levels. (it did.) In fact, the opposite occurred. (No, all income levels were helped. And, oh, BTW, it was not, by the author's own definition, not Trickle-down, it was across-the-board.) Income inequality worsened. (worsened is a value judgment. If all are financially improved, but some more than others, that is not an inherently bad or "worse" thing. And to expect that there should be a dollar for dollar equivalency in gains between different scales of income is ridiculous. What the difference should be may be debatable, but if all are actually better off is not debatable, it is a fact.) Between 1979 and 2005, after-tax household income rose 6 percent for the bottom fifth. That sounds great (It was great.) until you see what happened for the top fifth. Their income increased by 80 percent. The top 1 percent saw their income triple. Instead of trickling down, it appears that prosperity trickled up.

So if it took a lowering of the tax rate to achieve 80 percent or more income at the top in order to get a 6 percent increase at the bottom, it would be better just to stay in recession? And how much of that greater income gain at the top made it possible or favorable for the top to spend and invest in ways that spurred the economy thus make it feasible to rise out of recession and aid the bottom to get their 6 percent. If the bottom got their tax rate lowered, and the top did not get a low enough tax rate to invest in spending rather than hiding money in tax shelters, would the economy have improved or would it have remained stagnant thus depriving the bottom of the chance to gain a six percent rise in income or greater chance of employment?

Despite its shortcomings, Republicans use trickle-down economic theory to guide policy. In 2017, Republican President Donald Trump proposed cutting taxes for the wealthy. (He is proposing an across-the-board cut in taxes--which by your author's definition, is not "Trickle down.") He also wants to end taxes on capital gains and dividends for everyone making less than $50,000 a year. (That's another tax reduction at the bottom end of wage earners.) Trump's tax plan would reduce the corporate tax rate to 15 percent. That's been upped to 25 percent) He said it would boost growth enough to make up for the debt increase.

Nothing in your article, nor in historical evidence, says that he is wrong. Generally, debt increases because of spending. Cutting taxes has historically led to (or consistently "coincided" with) increased federal tax revenue. Your article doesn't dispute that. So, if the federal government gets more revenue, how does that increase the debt? It will increase only if spending increases beyond the ability to pay for the spending.

Your article finishes with:
In 2010, the Tea Party movement rode into power during the midterm elections. They wanted to cut government spending and taxes. As a result, Congress extended the Bush tax cuts, even for those making $250,000 or more.

Sowell's article ends with:
"Even when empirical evidence substantiates the arguments made for cuts in tax rates, such facts are not treated as evidence relevant to testing a disputed hypothesis, but as isolated curiosities. Thus, when tax revenues rose in the wake of the tax rate cuts made during the George W. Bush administration, the New York Times reported: 'An unexpectedly steep rise in tax revenues from corporations and the wealthy is driving down the projected budget deficit this year.' Expectations, of course, are in the eye of the beholder. However surprising the increases in tax revenues may have been to the New York Times, they are exactly what proponents of reducing high tax rates have been expecting, not only from these particular tax rate cuts, but from similar reductions in high tax rates at various times going back more than three-quarters of a century. To the extent that the American economy has changed since the time of Andrew Mellon, it has changed in ways that make it even easier for wealthy investors to escape high tax rates. A globalized economy makes overseas investments a readily available alternative to buying taxexempt bonds domestically. Even if the domestic tax rate is not 'high' by historic standards, what matters now is whether it is high compared to tax rates in other countries to which large sums of money can be readily sent electronically. Meanwhile, unemployed workers cannot nearly so readily relocate to other countries to take the jobs created there by American investments fleeing higher tax rates at home."

I'll wrap up this long reply to you by saying that your article does not address what Sowell says. Your article deflects from the true nature of reduced tax rates into some mythic theory of "Trickle down economics." Reduced tax rates encourage and enable needed money to stay at home rather than going abroad. Reduced tax rates are not based on the assumption that people will react as your author says. Rather, they are based on where, historically, money goes when rates are too high. They are based on evidence, not assumption.

From your response, it sounds as if you didn't read Sowell's article, or if you did, you do not understand it. More's the pity.

Last edited by detbuch; 10-29-2017 at 09:38 AM..
detbuch is offline