Why Democrats Should Do More Than Discredit Trickle-Down Economics

[mileslunn]

Trickle down economics is not clear cut.  The general view is if you cut taxes for the rich, the economy will grow more and that will trickle down to the middle class and poor.  The reality is somewhat mixed since if a wealthy person uses their tax cut to start up a new business or expand one, that is good for the middle class and poor since it creates jobs.  But if they use the tax cut just to buy a bigger mansion, fancier car, or yacht that has little benefit.  Supply side economics brought out the idea of the Laffer Curve and pretty much all economist accept its existence, its more a disagreement about where the peak is.  Also when it comes to taxes on the rich and big corporations, they are highly mobile so a lot depends on what they are of your competitors.  Top rates over 70% worked fine in the 50s, 60s, and 70s when all developed countries had such top rates, but don't work today as no country has rates that high and when tried most recently in France, failed miserably. 

For the US with the elimination of the SALT, it depends on which state you are in, in terms of top tax rate.  In California, the top combined rate is 50.3% which is probably too high and lowering it would be beneficial, but in Texas where it is only 37%, you could probably raise it by 5% without causing any harm to growth.

Trickle down has diminishing returns, otherwise if taxes are excessively high, the benefits can be quite great, but when they are already low, it just causes more harm than good so the debate should be more what is the optimal level of government spending and taxes as opposed to the dogmatic idea more of one or less of one is automatically good.