Daily Debunk: Trickle-down economics

It’s never worked, it’s responsible for decades of increasing income inequality, and it’s no excuse not to raise taxes on the wealthy

Will Rogers (right) and Seattle Mayor Charles Smith in 1935, shortly before Rogers’s ill-fated airplane trip to Alaska. Rogers is credited with coining “trickle down” as in trickle-down economics. (Seattle Municipal Archives)

By Ameya Pawar and Ted Cox

Some say you can’t raise taxes on the wealthy because they’re the “job creators” and you’re just depriving them of the money they need to hire more workers.

Welcome back to the Daily Debunk, attacking misinformation on the Fair Tax Amendment, on the ballot this fall to install a graduated income tax in Illinois.

Today we take on this idea that low taxes for the wealthy means prosperity for all. As a society, the United States has tried this approach for a half century, since the New Deal coalition broke down in the ‘70s. For the 30 years before that, government invested in people, and you had higher marginal tax rates on the wealthy. Since then, however, the opposite has been the case, and it’s accelerated from the Reagan administration — when it was known as trickle-down theory, based on the Laffer curve, notions even George H.W. Bush decried as “voodoo economics” — to President Trump, who signed into law a $1 trillion tax cut for the rich at the end of 2017 that placed an increasing tax burden on low-wage workers and the middle class.

Give rich people more tax cuts, the notion goes, and everything will get better. Well, how’s that gone over the last half century? Income inequality has worsened and the middle class has shrunk. Social-welfare spending has been stagnant — meaning a decline, actually, with the persistent rise in the cost of living. And who pays the social costs? The poor and the middle class.

To paraphrase an old Preston Sturges movie line, if you give tax cuts to the rich in hopes of stimulating the economy, it’s not the path to prosperity, it’s the bunk.

And it’s really nothing new, not even just over the last half century, as Wikipedia contributors have pointed out. William Jennings Bryan said over 100 years ago in his “Cross of Gold” speech: “There are two ideas of government. There are those who believe that if you just legislate to make the well-to-do prosperous, that their prosperity will leak through on those below. The Democratic idea has been that if you legislate to make the masses prosperous their prosperity will find its way up and through every class that rests upon it.”

Sound familiar?

Humorist Will Rogers is credited with actually coining the “trickle-down” term, writing in 1932, in the wake of the stock-market crash and as the Great Depression really took hold, that “the money was all appropriated for the top in the hopes that it would trickle down to the needy.”

Economist John Kenneth Galbraith found that the metaphor actually had earthier origins, pointing out it was known as the “horse-and-sparrow theory” in Bryan’s day in the 1890s, meaning: “If you feed the horse enough oats, some will pass through to the road for the sparrows.”

So when we insist that trickle-down theory is horse manure, there’s some historical precedent for that.

The Fair Tax Amendment seeks to install a progressive income tax in Illinois, with 97 percent of taxpayers paying the same or less than the current flat tax rate of 4.95 percent, while only the top 3 percent making more than $250,000 a year pay just a little bit more, up to a top tax rate of just under 8 percent for those making more than $1 million.

It’s an approach that worked throughout the postwar era, from the ‘40s into the '70s, to build the Interstate Highway System, improve public education, solidify Social Security and later Medicare and Medicaid, and generally make the United States a more fair and equitable society.

Those opposing a state progressive income tax might threaten nightmare scenarios of what could happen in the future — the topic of another Daily Debunk to come in the days and weeks ahead — but those who support a graduated income tax can point to the past as proof that it can and does work.