Trickle-down economics is a theory that says benefits for the wealthy trickle down to everyone else. It is a theory that makes sense … on paper. In reality, it has been tried more than once and proven that it does not work. Repeat after me: Trickle-down economics does not work. It does not trickle down, but rather pools in the bank accounts and investment portfolios of those who already own most of the nation’s wealth.
The theory is that if the government provides substantial tax cuts, industry de-regulations, and negotiates trade agreements that favour the big businesses of the nation, those big businesses will earn higher profit margins, and will therefore use their additional wealth to build more factories, hire more people, create more jobs, increase workers’ wages and benefits. The workers will have more money to spend, will buy more ‘things’, thereby increasing the profits of the big businesses who will use that additional profit to … well, you get the picture, right? Sounds about right, don’t you think? Yes, it sounds good, looks good on paper or white boards in boardrooms and congressional offices around the nation … but it does not work in reality.
Ronald Reagan tried it in the 1980s, thus leading to some calling it ‘Reaganomics’. It did not work. The U.S. economy was in a slump when Reagan took office in 1981, so he did two things: lowered taxes and increased government spending. Now, at this juncture I want to take a minute to let you know that I do not intend to provide a lesson in economics. I am savvy enough, but I am not an economist, and I typically leave these discussions to fellow-blogger Erik Hare over at Barataria. But Erik sometimes goes into more depth than is needed, as he IS an economist. Since I am not, I will put what little explanation I deem necessary in layman’s terms. So, using an over-simplification to explain what happened under Reagan …
Think of it on a personal level. You decide you want to enjoy life more, so you cut back your hours, thereby reducing the income from your job. At the same time, since you want to enjoy life more, you spend more money on such things as dining out, travel and household goods & clothing. For a while, perhaps, life is great, but then … the homeowner’s insurance comes due, there is a huge auto repair, and your daughter starts college. Uh-oh … it just caught up with you and now you must take out … loans. Go further into debt.
This is what happened under Reagan. He decreased the federal revenue by cutting taxes, increased federal spending in order to stimulate the economy, and for a while there was the illusion that it was working. People had more money, and spent more, and they were happy. But … time came to pay the piper and the money wasn’t in the treasury, so our federal debt tripled from $997 billion in 1981 when Reagan took office to $2.85 trillion in 1989 when he left office. Money is a finite resource. If you rob from Peter to pay Paul, as the saying goes, then soon you will need to rob from somebody else to pay Peter back. And remember that debt is not free. Take out a loan for that new car, and you will pay approximately 4.5% in interest. The federal government must also pay interest on its debt.
Then in 2001, George W. Bush tried the theory once again, cutting income taxes in an effort to stimulate the economy. Which it did … temporarily, until unemployment began to rise. So in 2003, he further cut taxes on business. According to the theory, the tax cuts should have helped people in all income levels. In fact, the opposite occurred. Income inequality worsened. Household income rose 6 percent for the bottom fifth. And 80 percent for the top 1 percent who saw their income triple. Instead of trickling down, it appears that prosperity trickled up.
Okay, so we see that it does not work, but why? I could point you to any number of studies with lots of graphs and charts to show inverse correlations, etc., but we would all be bored. The bottom line, I firmly believe is multi-fold. First, tax cuts reduce the revenue of the federal government, meaning that, since our government will almost never cut military spending, it will instead cut funding for social welfare programs, meaning the lowest income families will actually have less spending power. Second, federal debt will have to increase to cover the deficiencies caused by the tax cuts. And … here is, perhaps, the biggest reason: GREED. Big businesses that benefit from tax cuts are typically corporations who owe their very existence to their stockholders. They will keep those stockholders happy with higher annual dividends before they consider paying their employees higher wages or increasing benefits, let alone hiring additional staff. Purchasing additional factories? Perhaps, but that is not likely to increase jobs significantly, especially with today’s rapidly growing technological advances cutting jobs in many fields.
Now why, you are asking, is Filosofa boring me to tears with all this? Because, friends, Donald Trump is proposing/planning to go far beyond what either Reagan or Bush did in order to help big businesses, and he is dead wrong. I won’t expound on the potential outcomes if he is fully successful in pushing his plans, for that is an entire topic in itself. However, he has already begun with his rollback of certain regulations for which we will pay a terrible price, with no benefit to those who most need it.
Take, for example, what he said last week in a speech in Missouri: “We must reduce the tax rate on American businesses so they keep jobs in America, create jobs in America and compete for workers right here in America — the America we love.” Excuse me, but a large portion of Trump’s own products are manufactured overseas, as I have mentioned in previous posts, and 100% of his daughter, Ivanka’s products are manufactured overseas. Put your money where your mouth is, Trump!
What has Trump done thus far to help businesses see higher profits? Let us look at a few:
- He has postponed rules that protect workers from dangerous silica dust and beryllium
- He has given green lights to the Keystone XL and Dakota Access pipelines, which will help create a few thousand very temporary construction jobs
- He has pulled out of the Paris climate accord, is seeking to scrap rules against coal-fired power plants and allowed the dumping of coal waste in streams
- He has claimed credit for the opening of the Corsa coal mine in Pennsylvania, even though the mine opened some two months before Trump was inaugurated
- He claims to have kept some 1,200 jobs at the Carrier plant in Indiana from being moved to Mexico, but between layoffs and some jobs relocating to Mexico after all, the net number of jobs remaining in the U.S. is around 200
There is more, but this is enough for a wake up call, especially when we look at the cost of some of these moves, especially as pertain to the coal industry and oil pipelines. Coal companies dumping their waste in streams in their backyard obviously, to those of us with eyes and brains, poses a health threat for the families of those coal miners Trump claims to “love”. The rollback of regulations against coal-fired power plants and the blatant disregard for the environmental studies surrounding the pipelines is nothing short of criminal negligence and failure to protect the environment and those of us who inhabit this planet. Add to that, the fact that coal jobs may come back in very small numbers and for a short time, but overall, increased use of cleaner energy substitutes like natural gas, solar and wind have come too far and proven effective both in terms of a cleaner environment and cost-effectiveness to ever take a backseat to fossil fuels again.
In addition, Trump has been applauded by businesses for rolling back or repealing workplace regulations – safety regulations – that were costing businesses billions of dollars annually. I don’t know about you, but I would rather see OSHA do its job in keeping workers safe than trust businesses to take matters of worker safety into their own hands.
So what’s next on the Trump agenda? Why, tax cuts for business and industry, of course. And this brings me, after a circuitous route, but I hope one with some value, to the reason for this post. Tomorrow, Congress returns from its summer break, and among the first, highest-priority orders of business will be Trump’s budget. The key feature of said budget, from what I am able to discern, is increased military spending coupled with tax cuts, primarily large tax cuts for corporations.
Cuts in revenue, the result of cutting business taxes, must be offset by either cuts in spending or an increase in costly debt. One of the more egregious items reportedly in Trump’s budget proposal is to cut money for mine safety enforcement and eliminate funding for the Appalachian Regional Commission, which has aided hundreds of coal counties by financing job retraining and social services, helping to cut Appalachia’s poverty rates nearly in half.
The most recent jobs report shows that job growth is slowing and wage rates are stagnant. No surprise there, as the job growth rates over the first six months of Trump’s administration were merely a continuation of job growth under Obama. Slow job growth with stagnant wage rates is not exactly a win-win, and Trump has adamantly argued against a raise in the federal minimum wage.
The budget debate is just about to begin in Congress, and I expect it to be contentious, especially in light of funding that will be required to help with disaster recovery from Hurricane Harvey. One thing that is not needed, that will not help We The People, is tax cuts for large corporations and the top 1%.