Economic Policy

Our position is that trickle-down economics doesn’t work. That any fiscal program based solely on reducing taxes on the wealthy will increase the deficit and the wealth disparity between the rich and poor. Cutting taxes has been the central theme of the Republican, especially when you consider that repealing Obamacare would deliver a significant tax cut to the wealthy.

Briefly, trickle-down economics is the theory that if you give the wealthy more money in the form of tax cuts, they will invest in businesses that create jobs, with these and other benefits trickling down to the less wealthy.

While disproving trickle-down economics is a complicated issue that resists simple explanations, here are our proof points.

Reagan and The Start of Trickle Down Economics

Trickle down economics was first promoted by Reagan with significant tax cuts enacted in 1980. You see the drop in taxes from 70% to 50% in 1980, which dropped as slow as 28% in 1988. The rate increased to 38.6% under Clinton, leading to three years of a balanced budget, and then dropped again under George W. Bush, right around the time he started wars in Iraq and Afganistan.

The chart below proves that these tax cuts did dramatically reduce taxes on the wealthy while leaving rates consistent for the middle quintile.

Let’s see how these cuts impacted the federal deficit and the debt limit required to support the deficit. Have a look at the chart below, and focus on 1980, where the major cuts started. 

Through 1980, the numbers are trivial. After the Reagan tax cuts (and the beginning of trickle down), the numbers rose like a hockey stick. Note that when the country is in a deficit, tax cuts for the wealthy essentially mean that the country is borrowing money to give to the rich. This is especially ludicrous during the George W Bush years when Republicans started two tragically expensive wars. It’s no surprise that the deficit doubled under Bush 2.

Now let’s look at how after tax income has shifted since 1980. As you can see from the chart below, income for the top 5% (dotted line) increased from just over $50,000 to about $350,000 in 35 years, an increase of around 5x. The top quintile (blue) jumped from just under $50,000 to just over $200,000, or about 4x. Gains in the other categories are clearly much less.

How does this translate to the percentage of overall wealth? This is shown in the chart below. In 1980, the top 10% owned less than 40% of the overall wealth in the US, while the bottom 90% owned just under 70%. Since then, the top 10% has grown to hold over 50%, while the bottom 90% has shrunk to just under 50%.

At this point, the top 10% have accumulated more wealth than the bottom 90%. If trickle down hasn’t started working yet, it seems unlikely that additional tax cuts will jump start the effort.

Congressman Griffith has indicated that he believes that tax cuts will spur economic growth, essentially that trickle-down economics works. Our position is that tax cuts have been and will continue to be detrimental to the Ninth District.