The following article by Kimberly Amadeo was posted on the Balance website December 2, 2017:
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.
Trickle-down economics assumes investors, savers, and company owners are the real drivers of growth. It promises they’ll use any extra cash from tax cuts to expand business growth. Investors will buy more companies or stocks.
Banks will increase lending. Owners will invest in their operations and hire workers. The theory says these workers will spend their wages to demand and economic growth.
Trickle-Down Economic Theory
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. It 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. Continue reading “Why Trickle Down Economic Works in Theory But Not in Fact”