SUPPLY-SIDE, TRICKLE-DOWN TAX CUT THEORY HAS FAILED

Plutocratic economics (see this previous post for background), and specifically so-called supply-side or trickle-down economics, claims that cutting taxes, particularly on the wealthy and businesses, will stimulate economic growth so much that 1) government tax revenue will actually increase, 2) the number of jobs will grow, and 3) workers’ pay will increase.

There have been at least six significant federal tax cuts between 1978 to 2019 and, in every case, federal government revenue did NOT increase as promised. These tax cuts, under Presidents Carter, Reagan, G. W. Bush, and Trump, each produced some short-term economic stimulus, but federal revenue declined and the budget deficit increased. Furthermore, these tax cuts have been neither fair (economic inequality has increased) nor efficient (some of the country’s most profitable corporations and wealthiest individuals pay little or no taxes). [1]

Some states have also cut taxes based on supply-side economic theory, most notably Kansas in 2012. Like the federal cases, the results have not been what was promised. Kansas’s Republican Governor Brownback and the state’s overwhelmingly Republican legislature eliminated state income taxes for more than 100,000 businesses and greatly reduced taxes on wealthy individuals. Invoking supply-side, trickle-down economic theory, Brownback predicted the tax cuts would more than pay for themselves, i.e., that state tax revenue would grow. Instead, revenues fell so precipitously that shortages in funding for schools required that the school year had to be considerably shortened to save money, public construction projects ground to a halt, and the health coverage of the state’s Medicaid program had to be greatly reduced. The state’s economy ceased producing jobs and Kansas’s economy performed more poorly than its neighboring states on virtually every economic indicator. (See this previous post for more details.)

In 2016, Kansas voters – including Republicans who objected to seeing their children’s educations shortchanged – revolted. Republican primary voters, joined by Democrats, ousted legislators who had refused to repeal the tax cuts, and in 2017, the new legislature overrode Brownback’s veto of a bill repealing the cuts. In 2018, voters elected Democrat Laura Kelly as their new governor, and today, with adequate funding restored, Kansas has resumed its support for education, infrastructure spending, and the other basic governmental functions. As a result, in 2019, Kansas leapt from 35th (in 2018) to 19th on CNBC’s list of the top states for business. [2]

Nonetheless, in 2017, supply-side, trickle-down economic theory was invoked by President Trump and the Republicans in Congress in justifying their $150 billion a year tax cut primarily for corporations and wealthy individuals. The results of these tax cuts have been, predictably, NOT what was promised. Rather than stimulating higher economic growth, growth and job creation have been slow.

The federal budget deficit has grown substantially and workers’ compensation remains stagnant. Huge rewards have gone to large corporations and their executives, so economic inequality has grown sharply. The corporations are using the windfall to buy back their own stock at record rates. This enriches executives and other large stockholders. Corporations have not been increasing workers’ compensation, nor hiring additional workers, nor investing in innovation. (For more detail see this previous post.)

Furthermore, the Trump administration and Republicans in Congress, citing the growing budget deficit, argue that cuts need to be made in economic safety net programs including food assistance for the poor, health care for the poor and seniors (i.e., Medicaid and Medicare), and Social Security.

Future posts will summarize the harm plutocratic economics has done to workers and our democracy. They will also discuss the politics of neoliberalism and identify progressive policies that can reverse the harmful effects of plutocratic economics.

[1]      Kuttner, R., 6/25/19, “Neoliberalism: Political success, economic failure,” The American Prospect (https://prospect.org/article/neoliberalism-political-success-economic-failure)

[2]      Meyerson, H., 7/23/19, “Going up in economic ratings? Then lose trickle-down,” The American Prospect Today (https://prospect.org/blog/on-tap/going-economic-ratings-then-lose-trickle-down)

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