Andy Lynch wrote:
The two most recent examples we have of a concerted effort to employ this theory is by Bobby Jindal in Louisiana and Sam Brownback in Kansas. The results were not promising or good. If you are truly interested in whether this theory of Trickle Down economics has worked in these two states, meaning, if you are truly interested in whether this theory will work for US tax reform and how it might effect you, I suggest you google how those two states have fared.
The added element of Trump's Tax reform is proposed drastic deregulation for most industries. This is not included in the usual explanation of Trickle Down economics though it does usually play a role.
Trickle Dow Economics explained:
"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.
Trickle-down economics assumes investors, savers and company owners are the real drivers of growth. 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.
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.
Both trickle-down and supply-side economists use the Laffer Curve to prove their theories. Arthur Laffer showed how tax cuts provide a powerful multiplication effect. Over time, they create enough growth to replace the government revenue lost from the cuts. That's because the expanded, prosperous economy provides a larger tax base.
But Laffer warned that this effect works when taxes are in the "Prohibitive Range." This range goes from a 100 percent tax rate down to some hypothetical rate somewhere in the middle. If the tax rate falls below this range, THEN FURTHER CUTS WILL ONLY LOWER GOVERNMENT REVENUE WITHOUT STIMULATING ECONOMIC GROWTH. Our present rates on corporations and capital gains is now below that mark.
https://www.thebalance.com/trickle-down-economics-theory-effect-does-it-work-3305572
Does it work:
During the Reagan Administration, it seemed like trickle-down economics worked. His policies, known as Reaganomics, helped end the 1980 recession.
Reagan cut taxes significantly. The top tax rate fell from 70 percent (for those earning $108,000+) to 28 percent (for anyone with an income of $18,500 or more). Reagan also cut the corporate tax rate from 46-40 percent.
Trickle-down economics was not the only 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. It's just as likely that massive government spending ended the recession. (Source: William A. Niskanen, "Reaganomics," Library of Economics and Liberty.)
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 whether tax cuts or another monetary policy caused the recovery.
Trickle-down economics says that Reagan's lower tax rates should have helped people in all income levels. In fact, the opposite occurred. Income ine******y worsened. Between 1979 and 2005, after-tax household income rose 6 percent for the bottom fifth. That sounds 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.
https://www.thebalance.com/trickle-down-economics-theory-effect-does-it-work-3305572
The two most recent examples we have of a concerte... (
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I call the democrat economic plan similar to a "Fire Hose." Let me explain.
As fast as people can make money, the democrat raises taxes and takes the additional expendable income away from every working level in our economy. Thus, the domestic spend declines instead of increasing. This manifests itself in a decline of GDP that is driven by domestic spending.
Additionally, the bait for NAFTA type programs is a less expensive product from a foreign manufacturer. This got it sold.
But now Americans realize that it also took manufacturing away from the country, that day in and day out, produces the most creativity and innovative and highest quality products the world has ever seen.
You also forget the effects of NAFTA type agreements on creating a very strong incentive to invest outside of America and park your earnings away from the the grabbing hands of high taxation.
Thus, when democrats take charge and every plan is to tax and spend to grow the economy, the only winners are the owners of a business that has no demand. Obama was famous for picking winners that would never win for economic growth because they just did not have buyers.
That is why he worked so hard to say the 2% GDP was the new norm. Everything above that went to those folks that supported him and made outlets for him to pay them off.
Thus the "Fire Hose". Income was put into an economy and instead of being an a catalyst for growth, it was an economic k**ler. Just like water k**ls the fire.
This left most Americans with less income and paying more tax than they spend on food and housing and next to nothing on expendable income.
You are correct about trickle down creating winners and taking some of the win and spending it on personal items. What you forget is someone has to make those personal luxury items.
You also forget how trade imbalance creates havens outside of the USA to keep the money and avoid the highest tax rate in the world. Thus, under the tax and spend democrat plan, (Fire Hose) the economic fire is continually extinguished. And more Americans end up on the food and housing lines.
Thank God, that a business man is changing that and already 3% GDP has created more wealth for all Americans, than any tax and spend program ever has.