Fifty Years of Tax Cuts for Rich Didn’t Trickle Down, Study Says

Tax cuts for rich people breed inequality without providing much of a boon to anyone else, according to a study of the advanced world that could add to the case for the wealthy to bear more of the cost of the coronavirus pandemic.

The paper, by David Hope of the London School of Economics and Julian Limberg of King’s College London, found that such measures over the last 50 years only really benefited the individuals who were directly affected, and did little to promote jobs or growth.

“Policy makers shouldn’t worry that raising taxes on the rich to fund the financial costs of the pandemic will harm their economies,” Hope said in an interview. Continue reading.

Republicans prove they’ll never miss an opportunity to help the top 1% — not even during a pandemic

AlterNet logoWhich of the following statements do you think are true?

1) Republicans used the massive coronavirus relief package passed in late March (the CARES Act) to slip, at the last minute, more than $100 billion over a decade to households earning more than $1 million per year.

2) Republicans used the CARES Act to attack the few measures from the 2017 Trump Rich Man’s Tax Cut that were designed to bring in at least some revenue from multimillionaires. Continue reading.

The IMF confirms that ‘Trickle-Down’ Economics is a Joke

The following article by Jared Keller was posted on the Pacific Standard Magazine website June 18, 2015:

“Trickle-down” economics began as a joke. Seriously.

If there’s one person most often associated with the origins of of trickle-down economics, it’s President Ronald Reagan. Few people know, however, that the phrase was actually coined by American humorist Will Rogers, who mocked President Herbert Hoover’s Depression-era recovery efforts, saying that “money was all appropriated for the top in the hopes it would trickle down to the needy.”

Rogers’ joke became economic dogma within two generations, thanks in large part to Reagan. At the center of Reagan’s economic doctrine was the idea that economic gains primarily benefiting the wealthy—investors, businesses, entrepreneurs, and the like—will “trickle-down” to poorer members of society, creating new opportunities for the economically disadvantaged to attain a better standard of living. Prosperity for the rich leads to prosperity for all, the logic goes, so let’s hurry up with those tax cuts already. The legacy of Reaganomics continues to shape modern debates over macroeconomic policy in the United States, from the Bush tax cuts of the mid-2000s to the deficit hawks waging war over the federal budget in Congress.

Now, nearly 80 years later, Rogers’ quip is getting the punchline it deserves: A devastating new report from the International Monetary Fund has declared the idea of “trickle-down” economics to be as much a joke as he’d imagined.

Increasing the income share to the bottomow 20 percent of citizens by a mere one percent results in a 0.38 percentage point jump in GDP growth.

The IMF report, authored by five economists, presents a scathing rejection of the trickle-down approach, arguing that the monetary philosophy has been used as a justification for growing income inequality over the past several decades. “Income distribution matters for growth,” they write. “Specifically, if the income share of the top 20 percent increases, then GDP growth actually declined over the medium term, suggesting that the benefits do not trickle down.”

This should shock no one: Observers of income inequality over the past five years (especially those fond of Thomas Piketty’s Capital in the Twenty-First Century) will recognize this trend from economic data going back to the end of World War II. Consider this much-cited chartby Pavlina R. Tcherneva, of the Levy Economics Institute, tracking the distribution of income gains during periods of economic expansion:

(Chart: Pavlina Tcherneva/Levy Economics Institute)

(Chart: Pavlina Tcherneva/Levy Economics Institute)

According to Tcherneva’s analysis, the balance in the distribution is flipped from the majority of the nation to the top 10 percent during the Reagan and Bush administrations, a rapid acceleration of a gradual trend. Income inequality was already growing in the U.S., but the advent of Reaganomics kicked the trend into overdrive.

Or consider this chart from the Economic Policy Institute, which shows that, in general, the top one percent of society derives an increasing portion of income gains from existing capital and wealth:

(Chart: Economic Policy Institute)

(Chart: Economic Policy Institute)

One last chart, this one from the Economist, based on data from Emmanuel Saez of the University of California-Berkeley and Gabriel Zucman of the London School of Economics, shows how wealth has become increasingly concentrated in the hands of the super-rich:

(Chart: The Economist)

(Chart: The Economist)

According to the IMF, countries looking to boost economic growth should concentrate their efforts on the lower segments of society rather than bolstering so-called “job creators” with tax breaks. The study results suggest that raising incomes for the poor and middle class yields measurable improvements to the national economy: Increasing the income share to the bottom 20 percent of citizens by a mere one percent results in a 0.38 percentage point jump in GDP growth. By contrast, increasing the income share of the top 20 percent of citizens yields a decline in GDP growth by 0.08 percentage points.

It’s not just the IMF making the case against trickle-down economics: As Quartz notes, the Organisation for Economic Co-operation and Development recently published a strong case for fighting income inequality, asserting that economic growth “is most damaged by the effects of inequality on the bottom 40% of incomes,” Quartz’s Gabriel Fisher writes.

The message of the IMF report is clear: Income and wealth inequality isn’t a class problem, but a national issue. “Widening income inequality is the defining challenge of our time,” the authors of the report write. “The poor and the middle class matter the most for growth via a number of interrelated economic, social, and political channels.” While disciples of Reaganomics may be clenching their fists, Will Rogers is probably laughing from the grave.

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Letter: A simple tax plan isn’t always better

To the Editor:

Congressman Erik Paulsen has been urging us to support the Republican tax plan because it is simpler. He even promised we can spend more time with our families instead of having to do our taxes. However, simpler isn’t always better. Life is complex, and sometimes our tax returns reflect that complexity.

In eliminating complexity, this proposed law eliminates some important deductions. Congressman Paulsen called these “loopholes.” I call them important financial strategies to help us some of us while we are in economic hard times. Continue reading “Letter: A simple tax plan isn’t always better”

The Congressional GOP Tax Plan: A Bad Deal for the American People

The following is from an email from the Center for American Progress received November 16, 2017:

The Capitol is seen at dawn on October 30, 2017, in Washington. Credit: AP/J. Scott Applewhite

The Congressional Republican tax plan is not a good deal for middle-class and working Americans. It fails to cover the full cost of the tax cuts for the wealthy and corporations, adding to the deficit and putting middle-class priorities such as Medicare, Medicaid, education, and infrastructure at risk. Many states would see tens of thousands of families with tax increases, while nearly three-quarters of U.S. states would see hundreds of thousands—and in a few cases well more than 1 million—families with tax increases under the plan. Here’s what you need to know: Continue reading “The Congressional GOP Tax Plan: A Bad Deal for the American People”

The Republican tax plan is deeply unpopular — and unimportant to many Americans

The following article by Philip Bump was posted on the Washington Post website November 15, 2017:

President Trump holds up examples of what a new tax form may look like during a meeting on tax policy, Nov. 2, in Washington. (Photo by Jabin Botsford/The Washington Post)

While President Trump was on an extended trip through Asia, Republicans on Capitol Hill were pushing forward on his top legislative priority: overhauling the nation’s tax code to reduce the burden on corporations and some American households.

On Tuesday, the Senate proposal was expanded to include a repeal of the individual mandate that’s part of the Affordable Care Act (better known as Obamacare). The effect was to create a sort of policy Frankenstein (actually, a policy Frankenstein’s monster) that combines two of the party’s biggest priorities. It’s an iffy move, given the deep unpopularity of the health-care proposals the Republicans were proposing. But, then, two new polls show the Republican tax proposal isn’t that popular, either, even before health-care reform was jammed inside of it. Continue reading “The Republican tax plan is deeply unpopular — and unimportant to many Americans”

Former Pentagon chiefs to Congress: If you’re serious about defense, don’t pass current GOP tax bill

The following article by Ed O’Keefe and Karoun Demirjian was posted on the Washington Post website November 15, 2017:

Former defense secretary Leon E. Panetta speaks during a discussion on countering violent extremism on Oct. 23 in Washington. (Drew Angerer/Getty Images)

Three former secretaries of defense are warning lawmakers not to enact proposed Republican tax restructuring plans, arguing they will jeopardize future military spending.

Former defense secretaries Leon E. Panetta, Chuck Hagel and Ash Carter told senior congressional leaders in a letter Wednesday that because the tax plan is expected to increase the debt, passing it will probably mean future cuts to Pentagon budgets “for training, maintenance, force structure, flight missions, procurement and other key programs.”

“The result is the growing danger of a ‘hollowed out’ military force that lacks the ability to sustain the intensive deployment requirements of our global defense mission,” the secretaries wrote. They cited two recent accidents involving U.S. Navy destroyers that led to the deaths of 17 sailors as evidence that cuts in military spending can lead to a “lack of adequate training.” Continue reading “Former Pentagon chiefs to Congress: If you’re serious about defense, don’t pass current GOP tax bill”

How Could a Tax Change Affect You? This Is What the Senate and House Propose

The following article by Ron Lieber and Tara Siegel Bernard was posted on the New York Times website November 10, 2017:

Treasury Secretary Steven Mnuchin speaking during a Senate news conference this week. House and Senate tax plans differ on a number of important issues. Credit Tom Brenner/The New York Times

On Thursday, Senate Republicans unveiled their tax bill. It differs from last week’s version in the House of Representatives on a number of important issues. For instance, the Senate plan would completely eliminate the ability to deduct state and local taxes; there is no exception for up to $10,000 in property taxes each year, as there is in the House bill.

It’s too soon to predict what, if anything, will come of all this. In the coming days and weeks, we will see which proposals survive as Congress moves toward possible full votes on these or modified bills. In the meantime, here’s a guide to some of the consumer-facing issues under consideration.

Tax Brackets

What’s in place now:

Seven brackets, with a top rate of 39.6 percent, which people pay on income they earn beyond $480,050 for couples filing their taxes jointly. Continue reading “How Could a Tax Change Affect You? This Is What the Senate and House Propose”

Partisan Sparks Fly at Ways and Means Tax Markup

The following article by Ryan McCrimmon was posted on the Rollcall website November 6, 2017:

California Democrat Mike Thompson calls a bill provision “cruel” and “heartless”

Ways and Means Chairman Kevin Brady sits in front of tax code volumes during a Monday committee markup of the House Republicans’ tax plan. (Tom Williams/CQ Roll Call)

The fireworks started early at a Ways and Means Committee markup Monday of the House Republican tax plan, as a top Democrat slammed a provision that would end certain tax write-offs for properties damaged by fires.

California Rep. Mike Thompson said the sweeping legislation was “cruel” and “heartless” for repealing such tax benefits for his constituents in Northern California, where devastating wildfires burned through parts of Sonoma, Napa and Yuba counties in early October and elsewhere in the state. He pointed out that victims of recent hurricanes in Texas, Florida and other states would be grandfathered in and be able to deduct some of their uninsured property losses.

“I’ve got 9,000 people who had their homes burned to the ground,” Thompson said. “You’re pulling the rug right out from underneath them.” Continue reading “Partisan Sparks Fly at Ways and Means Tax Markup”

‘Voodoo economics’ makes a comeback in Republican tax plan enriching the rich

The following article by Prof Chrisian Weller was posted on the Conversation website November 3, 2017:

Republicans in Congress recently released more details of their tax plan, which they say would boost economic growth and lower the burden on middle-income households. They hope to pass a bill into law by Christmas.

The reality is that the proposed cuts, which carry a price tag as high as US$1.5 trillion over a decade, would offer the greatest relief to corporations and the wealthy.

Simply put, the plan reflects the thinking of supply-side economics, whereby tax cuts to top earners are said to result in more business investment. Lowering taxes for the wealthy and companies, the theory goes, fuels a benevolent cycle that ultimately leads to higher wages and a stronger economy.

I have worked on a wide range of economic policy topics, including taxes, for two decades now. Evidence from past changes suggests that the tax plan would do little to increase business investment or help workers. Instead, it would increase the gap between rich and poor, while leaving massive budget deficits in its wake.

Supply side in a nutshell

Republicans these days don’t often use the term “supply-side economics,” which has been pejoratively dubbed “trickle-down” or even “voodoo” economics – the latter by none other than former President George H. W. Bush.

Instead, Republicans and President Donald Trump continue to make the false claim that their plan would mostly benefit middle-class Americans. In contrast, an economic analysis of the tax plan framework released last month showed that half of the proposed cuts would go to the top 1 percent.

The latest version is unlikely to significantly change that result. While the 39.6 percent tax rate will remain, the threshold has been more than doubled to US$1 million from less than $500,000, meaning earnings up to that point will be subject to less tax, and the plan would still get rid of the estate tax, which is mostly paid by wealth families. In addition, two-thirds of the benefits – about $1 trillion – will go to companies, which, as I’ll explain, primarily benefit the rich as well.

In any case, here’s the theory of how cutting taxes for the wealthy leads to more growth and jobs. The wealthy would use the lion’s share of their tax savings to invest in new and existing businesses. This would drive more economic growth, leading to increased levels of productivity, more jobs and higher wages.

Tax cuts to companies would also give the economy a kick. Companies could in theory use some of their increased profits to finance new plants, office space and equipment, and the lower rates would induce more foreign businesses to invest in the United States, altogether boosting jobs, productivity and wages.

President Trump’s Council of Economic Advisers claims that the corporate tax cuts alone would boost economic growth to 3 percent to 5 percent a year.

Past tax changes

Research on past tax changes suggests that the Republican tax plan will not have the impact its backers claim.

Four large-scale tax changes in the past four decades help to illustrate these points: tax cuts in 1981 and 2001 and tax increases in 1993 and 2012. I compared what happened to business investment, employment, wages and economic growth before and after each tax change.

In August 1981, Congress lowered personal income tax rates – especially for high-income earners, who saw a drop in the top tax rate from 70 percent to 50 percent – as well as the corporate rate. Similarly, two decades later Congress cut personal income tax rates and the estate tax.

So what happened? Business investment, clearly a key metric in evaluating the success of the supply-side tax cut argument, was virtually flat as a share of gross domestic product after the 1981 cuts. Following the June 2001 cuts, it actually fell, from 13.8 percent in the month the bill passed to under 12 percent three years later.



As for jobs and wages, their growth increased only a little after the 1981 tax cuts and actually slowed in the three years after the 2001 tax cuts were passed.

The flip side of the supply-side argument is that any increase in taxes should have the opposite effect: less investment, slower growth, fewer jobs and stagnant wages. Empirical evidence suggests otherwise.

In August 1993, Congress raised the top marginal tax rate to 39.6 percent from 35 percent on high-income earners. Lawmakers raised the top rate again at the end of 2012, while also increasing the estate tax.

Business investment grew after the 1993 tax increase, from 11.6 percent of GDP to 13 percent three years later. And it grew after the 2012 one as well, albeit more slowly, from 12.5 percent in December that year to 12.7 percent in 2015 (though it reached 13.1 percent a year earlier).

Jobs and wages tell a similar tale, both of which grew at a faster pace after the tax changes.

As for economic growth, supply-side policies do not tend to result in a stronger economy. While growth jumped immediately after the 1981 cuts, the economy quickly lost steam. And in 2001, GDP barely budged. Meanwhile, growth accelerated modestly in the years after the tax increases in both 1993 and 2012.

Proponents of such policies think that by giving more money to the “supply side” of the economy, the wealthy and investors who manage the capital necessary for productive investments such as manufacturing plants or new trucks and computers, they can spur long-term economic growth.

The data show this is not the case. Long-term economic performance is little different whether you cut or raise taxes on the richest Americans. Other research on the impact of corporate cuts also shows this.



Rather than wasting money on supply-side tax cuts that line the pockets of the wealthy and corporations that have already seen outsized gains in income, the money could be much better spent on more infrastructure – bridges, roads and canals – and on education. Over the long term, this is what drives productivity and economic growth – not more money to the wealthy – because this leads to more business investment, higher wages and more jobs.

Stock market reaction explained

So why do investors appear so ecstatic over the prospect of tax cuts and continue to drive major stock indexes to fresh highs?

Because they’re the ones who would get most of the gains from the cuts, whether because they’re already wealthy or because a growing share of corporate after-tax profits are used to keep shareholders happy through share repurchases and dividend payouts. In fact, virtually all profits have been spent on shareholders in the past two decades, compared with around a third or less in the decades before the 1980s.

Another part of the supply-siders’ argument in favor of a lower corporate tax rate is that it would make the U.S. a more attractive place for foreign companies to invest. Yet overseas businesses are already investing a growing amount of money in the United States, regardless of the relatively high statutory tax rate. This suggests that their investments are likely driven by considerations other than the tax rate, such as by skill level of the local labor force, access to markets, a sound legal system and good infrastructure.

Republican voodoo

In sum, there’s little if any evidence to support the notion that tax cuts for high-income earners and companies will trickle down to average Americans.

The government would lose revenue by passing these tax cuts without any clear offsetting economic benefits. To make budgets add up, Congress would have to accept larger deficits or force spending cuts on vital programs in health care, education, retirement and social services.

All told, this would further exacerbate already very high income inequality. That is clearly the 21st century’s definition of “voodoo economics.”

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