People always say “trickle down worked great during the Reagan administration!” Well, alright, maybe they don’t always say it, but I’ve heard it somewhere from someone, cuz I sure as hell didn’t just guess that was his policy. But did it really work? The poor got no tax cuts and they hate Reagan (“Ronald Reagan was the devil! Ronald. Wilson. Reagan. Each name is six letters, six six six, the mark of the beast!”- The Boondocks). The Keating Five scandal McCain was a part of, that happened during Reagan’s administration because of the Savings and Loan collapse. On Black Monday the stock market crashed like a drunk driver on an icy road with tires made out of pudding. The National Debt exploded from under 1 billion to 3 trillion. Eventually Reagan broke down and raised taxes. Seven times.
Then Bush tried trickle down again, and what happened? Unemployment is up, AIG, Lehman Brothers, Fannie and Freddie all collapsed, our stock market is tanking, and the national debt got so big they had to remodel the national debt clock.
There’s actually a displayable reason why Pump-Priming kicks the shit out of Trickle-Down in terms of economic stimulus. Alright readers, prepare yourselves, because there’s some math a-comin’. For the weak of heart and those pregnant or nursing, I’ve bolded the most important pieces so you can skim my article and ignore most of the mathematics
In our country the top 20% of people control 84% of all the wealth. If you cut their taxes by 10%, this will in theory lead to a decrease in the costs of goods and services based on the cut relative to their total revenue.
10% off a 35% tax rate is a 3.5% drop, they already had 65% of their revenue so 3.5% / 65% is a 5.4% increase in available revenue, which, in theory, would translate into a drop in the cost of their goods and services.
So you achieve a 5.4% drop in prices by reducing total tax revenue by 9.2% through trickle down tax policy.
3.5% (the upper tax cut) * 84% (total upper income) / [35% (original upper tax rate) * 84% (total upper income) + 22% (lower tax rate) * 16% (total lower income)]
=3.5% * 84% / [35% * 84% + 22% * 16%]
However, if you take that same reduction in tax revenue to the lower classes (the bottom 80%) you can give them all a significantly bigger tax cut of almost 86% over the multiple brackets.
Because that bottom 16% is taxed at a lower rate than the top 84%, it is a significantly smaller portion of the tax revenue (the tax rate ranges from 15 to 28%, so I’m going to use 22% as an approximation). At 22% the bottom 80 would provide just under 11% of total tax revenue.
16% of total income at a 22% tax rate divided by 84% of income at a 35% tax rate plus 16% of total income at a 22% tax rate
=(16%*22%)/(84%*35% + 16%*22%)
So for the same cost (9.2% of total tax revenue) you can reduce the taxes on the lower class by 85.9% which then increases their buying power by 24.2%.
9.2% decrease in total revenue / 10.7% of total revenue = 9.2/10.7 = 85.9%
85.9% off a 22% tax rate is an 18.9% drop, they already had 78% of their revenue so 18.9% / 78% is a 24.2% increase in available revenue, which translates directly into an increase in buying power.
Just to recap, AND FOR THOSE OF YOU SKIMMING, STOP IT! READ EVERYTHING FROM HERE OUT: for the same price in total revenue, you can give a 10% tax cut to the top class and increase buying power by 5.4%, or you can give an 85.9% tax cut to the bottom class and increase buying power by 24.2%.
When, for the same price, you can give almost nine times the amount of tax cuts to the lower classes, and increase buying power as by almost five times as much, arguing tax cuts on the top brackets makes you either selfish (if you’re in that bracket) or stupid (if you’re in that bottom 80%).
Three things of note:
1- No one is proposing a 10% tax cut for the top bracket, that’s stupid from every angle, but the proportions all stay the same whatever the number, 1% 5% 30%, it is always ~nine times the percentile cut and ~five times the increase in buying power.
2- If the top X (<50) percentage of America had less than 50% of the total income, the numbers would reverse themselves (with the current tax bracket schedule) and trickle down would be a valid theory. But they don’t, so it’s not.
3- Additionally, not all of the top 20%’s tax cuts will go to cost reduction, most of it will actually just be saved and accumulated or reinvested in the company, and people are not venture capitalizing quite like the used to. Whereas the people who have to decide between health care and new school clothes for their children will immediately use their increased buying power which will stimulate the economy.
Last thing, my apologies that there isn’t too much humor in this, so I’ll make my next one is twice as funny. Or half as unfunny. I forget how that math works.