The Trickle-Down Myth

At one time or another, most of us have heard the phrase “trickle-down economics.” It is, in the conservative mind, the best way to stimulate the economy, thus it was the basis for the 2018 tax reform bill authored by Congress and signed into law by the president. But, before accept that “trickle-down” works admirably well, let’s examine how it works.

In an economic context, “trickle down” means that tax incentives aimed at the wealthiest of the economy will work their way down to the middle and lower classes. However, a tax break for a wealthy man, or more rarely a woman, is discretionary. He can spend it on an American-made business jet or a Norwegian yacht. She can invest the money in an asphalt plant in Pittsburgh or Vietnam. He can buy 1,000 acres of farmland in Nebraska or in Suriname. She can invest in an American hedge fund, or Eurobonds, or bitcoin.

Moreover, the wealthy need never be in a hurry because, well, they’re wealthy. Hence the phrase “trickle down,” which, to review, means that a lot of money is given to the wealthy in the form of tax breaks, and then it trickles down to the middle and lower classes, except for the parts that are invested overseas or put aside for a rainy day, possibly in the Caymans.

It would seem from a cursory examination of trickle-down economics that there’s room for improvement. Let’s imagine for a moment that instead of giving another tax break to the wealthy, Congress voted to cut taxes for the middle class and to increase subsidies like food stamps and Medicaid for the economically disadvantaged. Unlike the rich, the lower classes don’t have any money to save, and the middle classes don’t bother (with few exceptions). Instead, they spend it on essentials like heat, healthcare, video games, and pop tarts, and they can’t afford to wait.

In other words, the money enters the economy quickly, and then it gushes up the economic food chain: from the retail stores to the companies that own the retail stores, to the hedge funds that own most of the stock in retail store companies, and on to the men and women who invest in hedge funds. In the end the wealthy get it anyway, but at least the middle and lower classes had it for a while––and pop-tart sales skyrocketed.

Sadly, the phrase “gush up” sounds too much like vomit. It never caught on, which must explain why the rich get all the tax breaks.

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