Randy
Lv 4
Randy asked in Politics & GovernmentGovernment · 7 years ago

Question about tax cut (trickle-down) theory...?

I understand trickle down economics to go like this:

Definition

1. The policy of providing across the board tax cuts or benefits to businesses, such as tax breaks, in the belief that this will indirectly benefit the broad population.

2. The theory that helping those with higher incomes (through tax cuts, subsidies, etc.) will indirectly help those below.

Doesn't the theory make a basic mistake about HOW people get money, and how they get rich? Namely, people don't get rich by spending every dime they make- by definition you CAN'T. When you use trickle down logic, you are saying, "Let's give money to some of the people least likely to spend it, and that is the best way to get money into the economy". You want that money in the economy fast and effectively? Give it to a single mom of 4 (I am not one lol). She won't be tucking it away for later, or waiting for the business climate to improve before investing, or buying Swedish import whatevers with it. She will buy staples produced in this country, like food, clothing, and household products, Maybe go out to eat. Again, in this country.

Now business tax cuts are better, but not still not the one-size-fits-all solution claimed by some. After all, businesses save money too, and some of their expenses may be out of country. Plus, you add the psychological side to it. Businesses make spending decisions based partly on how they feel about the economy from their perspective, and that is difficult to predict, let alone control. And, for ironic fun, you may actually pay someone's bill to outsource, since paying workers $.20 cents an hour makes for a hell of an incentive when you currently pay your workers $10 or higher, tax breaks or no. Have fun as a politician with that ad running in your state in November...

Update:

@Todd Yes, the wealthy invest, but not as much (percentage wise) as those who are not wealthy, and NEED to spend every penny that comes in. The wealthy can, and do, save their money. You don't get rich by spending money left and right. That is the whole argument here, if you don't understand that point, then I didn't state it very well. Not sure where I was unclear, let me know so I can clarify...

3 Answers

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  • lare
    Lv 7
    7 years ago
    Favorite Answer

    yes the whole idea doesn't work. what we have is a consumer economy, starting with the Eisenhower administration. when people buy "stuff" that is what makes factories expand and hire workers. That is why the Bush stimulus was a refund check sent directly to consumers because even supply side economists recognized that trickle down had failed.

    Republicans like to point to Reagan, the first to try supply side. The result was the government made more revenue after the tax cuts than it did before, so the tax cuts "paid for themselves". That was supposed to happen with Bush, but instead of paying for themself, the Bush tax cuts merely increased the national debt. Cheney said in a Meet the Press interview that the Bush tax cuts were directly responsible for 1/4th of the national debt.

    What really happen to Reagan, is that after the tax cuts, Reagan discovered he didn't have enough money to run the government, and the deficit soared. His solution was to re-write the tax code, taking away the deductions and tax shelters used by the rich, and created the largest peace time tax revenue increase ever. That is what those suffering from Romnesia have forgot. Reagan saved the economy by effectively increasing taxes.

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  • eddie
    Lv 4
    4 years ago

    Tax cuts work - tax raises decrease the amount of money within the financial system and hurt all people. Appear at historical past! You appear to omit that taxes had been fairly excessive when Reagan became president. We had a lot less money to spend earlier than Reagan. We all know easy methods to spend OUR money higher than the federal government does. Don't forget it can be OUR money, now not the government's. When taxes are raised, companies need to pass the additional rate onto patrons. This make things more high-priced. Repeatedly this additionally manner workers are laid off due to the fact that the service provider can;t have enough money to preserve them. BTW, a few of the "wealthy" taxpayers" are really small industry house owners. CA raised sales tax for the period of a recession and the economy TANKED! Businesses are leaving the state seeing that it's too highly-priced - taxes are excessive.

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  • Anonymous
    7 years ago

    The wealthy invest. So yes they do spend. Has a homeless or poor person ever hired anyone?

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