What Is Trickle-Down Economics?

The vice-presidential debate goes tonight in Kentucky, and Ohio senator Sherrod Brown gave us a sneak preview of the line of attack Vice-President Joe Biden is likely to use against Republican veep nominee—Ryan, charges Brown has “dressed up trickle-down economics and wrapped it in an Ayn Rand novel.”

It’s admittedly a snappy soundbite although I have absolutely no idea what Brown means, and given that Rand’s most notable novel—Atlas Shrugged—is long enough to make the unabridged version  The Count of Monte Cristo look like Cliff’s Notes, I highly doubt Brown has read it, and therefore he probably doesn’t know what his own soundbite means either.

Perhaps the mystery lies in this question—when we use the term trickle-down economics, what exactly does that mean? Again, I don’t think liberal politicians have the foggiest idea—they toss it about as a soundbite, something that conservative politicians have regrettably started imitating in their recent abuse of the word “socialist.” But let’s take a crack at what trickle-down economics might mean.

Herbert Hoover (at right) was a tax-raiser, JFK (at left) a tax-cutter. Who was the trickle-down advocate?

The theory first came into vogue during the Great Depression, and was attributed to the policies of Republican president Herbert Hoover. Although Hoover also believed in tax increases to try and balance the budget. And since this latter idea is abhorred by Ryan and his philosophical soulmates, it’s clear that attributing the term’s original intention to them is inaccurate.

We could also try the face value explanation—which would presumably be the belief that government policy should focus exclusively on benefitting the upper classes, and count on prosperity to trickle down to the rest. This is clearly the interpretation President Obama and his campaign strategists hope the American voters believe.

Although again, while Ryan does undeniably advance tax policies that benefit the wealthy, he doesn’t do so at the expense of the middle class. One might reasonably argue that the country can’t  afford cutting taxes across the board. One might argue that doing so would accelerate the income gap. Both would be reasonable cases to make, but it certainly doesn’t mean Ryan thinks the middle class should do nothing but sit around and wait for a few crumbs to trickle down.

Finally, we come to the deeper explanation, which is that political Left really believes that there are only two choices in economic policy—one is to soak the rich, play the envy card and whip up class anger, and the other is trickle-down economics. And since Ryan isn’t the former, he must naturally be the latter. This theory has a simplistic quality to it that plays well in political debate although its relationship to fact is somewhat tenuous (that’s a long-winded of saying this theory is a bunch of B.S.).

I don’t believe that strengthening the wealthy and the merchant class will magically solve our economic problems. There are too many people like David Siegel, the CEO of Westgate Resorts, who told his employees that any further tax increases meant he would undertake substantial layoffs—this, while he continues to install an elevator in his mansion and continue construction of the 20-plus bathrooms.

Siegel’s attitude over what amounts to few percentage points on taxes (the top rate would rise from 35 percent to 39 percent if Obama allows the Bush tax cuts to expire, as promised) is worthy of contempt and a good example of why Republican coziness with the economic elite meets with reasonable skepticism.

But at the same time, an all-out attack on the wealthy and the merchant class is completely counterproductive. They might not be the sole cause for economic growth, but all but the most hardened left-wingers would acknowledge that a vibrant investing class is at least a component of a successful economy.

Democrats who call the above paragraph trickle-down economics have neglected the history of their own party. When John F. Kennedy decided the top marginal tax rate of 91 percent was suffocating incentives for the wealthy to invest, and pushed a plan to cut it to 70 percent (it passed after his death) was he advocating trickle-down theory?

When the old liberal warhorse Tip O'Neill, cooperated with Ronald Reagan on tax reform, was he a born-again trickle-down man?

When a large coalition of conservative Democrats cooperated with Ronald Reagan to further take the rate down to 50 percent, were they all trickle-down acolytes?

And when a Democratic House, led by liberal stalwart Tip O’Neill, along with Dan Rostenkowski,  further worked with Reagan to get both a lower top rate (28 percent) and an elimination of a large chunk of tax loopholes in 1986, were they sudden converts to trickle-downism?

No they weren’t. What they essentially figured out was that, while strengthening the wealthy is not some magic elixir to economic problems, attacking them doesn’t get you anywhere either.

I would suggest a discussion along these lines would be a healthy way to use the 90 minutes allocated for Ryan and Biden to debate. Ryan could be invited to talk further on the ideas he has that are specific to the middle class. Biden could be invited to clarify his thoughts on whether there is a point where marginal tax rates become too high.

Although that would actually be a productive use of 90 minutes, and our political class has created a “debate” culture where each candidate will be instructed to just get through the time by reciting poll-tested answers more rigged than a WWE wrestling match. I think I’ll pass and watch the baseball postseason, which is at least unpredictable.

Dan Flaherty is the author of Fulcrum, an Irish Catholic novel set in postwar Boston with a traditional Democratic mayoral campaign at its heart, and he is the editor-in-chief of TheSportsNotebook.com

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10 thoughts on “What Is Trickle-Down Economics?

  1. Joe M says:

    “Trickle down…” is generally used as an insult. However, it’s not really difficult to understand the relationship between taxes and prosperity. A businesses ability to hire people, offer lower prices or raise wages is a product of their revenue minus costs. Taxes are a cost. Therefore, the higher the taxes, the less ability a business has to hire people, offer lower prices or raise wages.

  2. Rich says:

    Probably what Catholics should be looking at is a morality based budget which is well funded for the needed services by a fair tax policy. The trickle down theory most recall was part of the Reagan plan to cut taxes on top, who by theory would increase their earning and invested it into jobs (internally and externally) Will Rogers coined the term, saying, “The money was all appropriated for the top in the hopes it would trickle down to the needy”
    The moral budget is the one where the Bishops have faulted Ryan on his ideas. Naturally that does not mean that they endorse any other, but that there needs to be a fairer distribution of public money to aid the poor and sick and the children.
    If there is anything about these moral questions that are addressed tonight is uncertain. But the name calling is certainly not going to advance our understanding of how the needs of people will be cared for in the next four years. People of faith do not need to find a political party that meets their faith, but the leaders who will respond best to the total moral issues that we will be pressuring them with. We need to attend not just to the one we like, as we need to be ready to work for justice no matter who is in the White House.
    We need not worry as much about out religious liberty as our faith responsibility. No one can ever deprive us from the personal liberty to hold our faith and put into action in the work for Justice.

    1. Joe M says:

      The deficit that Obama has created is immoral. Our children and the poor will suffer most for it.

      1. Rich says:

        OK – whatever Joe. you have your Obama insult done for today, go an pick up your CV Star, you are an Official CV Political Analyst.
        However, that is not the part that the Bishops have chastized Ryan for on his Budget. So get with the program or move along. (I believe what you are doing is called trolling.)

        1. Joe M says:

          An observation is not an insult. It is immoral that Obama has burdened future generations with this debt. It harms economic growth that is needed to sustain a growing population and it lessens our ability to care for the poor.

    2. Mary says:

      Unemployment eased considerably after the Reagan tax adjustments in the 80′s. In particular, youth unemployment improved dramatically. Doesn’t something similar sound like it might help the poor if they could find work again?
      Romney is not making something up from scratch. He has seen it work in history and has made it work himself on a smaller level (still much larger than most of us). Jesus never told anyone to take from people with stuff (ie taxes) and give to those of our choice (poor people or govt employees, or Solydra depending on the day).
      If you personally have extra money after paying your taxes and bills, please be generous with it as there are many charities which are struggling right now. But you are not under a Christian obligation to vote in a govt who will take from the “wealthy”, Pope Benedict has already explained that most of the Grace is lost by virtue of the force involved in the process.

      1. Rich says:

        You have a very good rewrite of history, but not convincing. But this is no Romney’s plan it is Ryan’s. Romney has not yet decided on his plan other that that he has one. Which of the 59 points can you name? LOL Romney is very clear he does not wont to do what Reagan did, but he has not said how it will differ. This is not a plan he had in Mass. You may want to check up what a mess happened in Mass when he was governor. He did not like the job very well, and his only real accomplishment was ObamaCare prototype RomneyCare. You may have heard him bringing that back up know that he has eliminated those on the right and is moving back to his Moderate Pro-Choice Mitt. It will be interesting to see how he and Ryan accomplish his moderation in order to keep the new voters he has gain by moderation. You also may want to check out Catholic Social Teaching to see what it says about paying taxes and serving the poor. You need to know that Ryan did not deliver a very good explanation that has landed him in very hot water with the Bishops. All but the politically invested ones are not endorsing his budget plan, nor or the others, they are just ignoring that it is contrary to church teaching. The Catholic Church is not the Tea Party, we believe in Solidarity and the Preferential Option for the Poor. We do not believe that any I alone did anything like build it. For the world and all in it is God’s we are but stewards, and have to be accountable for what we have and how we used it for ourselves and for others, including the taxes we were to render unto Caesar and to protect the widow and the orphan. Our Catholic Charities are government contractors serving the needs of the people of society with Federal Tax dollars supplemented by donations. We are obligated to vote in a government that will tax fairly the rich and the not rich, but will not favor the rich at the expense of the poor. If you think you have heard that from Romney, you should listen harder. Ultimately it is your decision in your conscience and the Church will not obligate you to any candidate. That is the civic part of religious freedom.

        1. Joe M says:

          Romney wants to do what the Republican Congress did during the Clinton years.

          Ironically, Democrats to this day try to take credit for the positive effects of welfare and tax cuts under Clinton.

        2. Mary says:

          Per Young Americas Foundation, Reagan’s tax cuts reduced youth unemployment by 43%. If Obama and gang had accomplished anything similar with their policies, this election would not even be close. Telling me I am rewriting history is a way of saying I am lying, which is very unChristian, no matter what else you are spouting. Look it up yourself.
          I am not wealthy, just an accountant who doesn’t want WORDS of goodwill, I want actual goodwill occurring. This has worked before, and that is an indesputable fact.
          Obamas team is just.counting on youngsters who do not know their history trusting him.

          1. Rich says:

            OK Mary you can pretend that this is true and that this is the same situation as the early 1980’s. Trickle down theories then or now or in 1920’s were not ever seen as “goodwill”
            As an accountant you must be very frustrated by the Romney economic plan and the total lack of details other than to assume with his elections the business owners will Miraculously start creating the Jobs that were promised from the Bush Tax Cuts. You must be pulling your hair out trying to find the balance with the lowering of taxes and the closing of loopholes without raising individual taxes that suddenly creates more money.
            You and the rest of us will be all be shopping at Goodwill unless Mitt pulls his money from the Cayman Islands to floats us loans from his personal charity.
            Reagan would have a response for those that think trickledown is the right policy to repeat; “There you go again!”
            One would think we could get smarter that to repeat the mistakes we have failed at before. But do not disturb your fantasy with mere facts. Keep goggling to fins something that supports the way you think. No need to challenge a closed mind.

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