While liberals scream "Trickle down economics didn't work", the facts tell a different story

[francoHFW]

Unfortunately, we stopped practicing it after the 1980s, and things have been poor ever since.

NO.....again the marginal tax rate under Reagan was 50%....now its less than 40%........So, you figure out the disconnect.

Actually, he lowered it to 50%, and then to 28%.

But facts aren't liberals' strong suit. They have no use for them.

Ditto!

 

[edthecynic]

Reagan was elected in Nov. 1980, took office in 1981, and his first budget become effective in 1982.

St Ronnie's first budget took effect Oct 1, 1981. ERTA was passed August 4, 1981 and signed Aug 13, 1981.

 

[edthecynic]

ALL segments of the population increased significantly after Reagan passed his tax cuts, not just "the rich".

The income of the bottom declined from both Reagan's income tax cuts and his Payroll tax increases. Only the wealthy benefited if you count both income and payroll taxes.

 

[francoHFW]

Unfortunately, we stopped practicing it after the 1980s, and things have been poor ever since.

NO.....again the marginal tax rate under Reagan was 50%....now its less than 40%........So, you figure out the disconnect.

Actually, he lowered it to 50%, and then to 28%.

But facts aren't liberals' strong suit. They have no use for them.

Ditto!

IE: Seems like it worked with a top rate of 50% 1982-88, then feqed up when he lowered it to 28%, eh? Great idea! Let's do it...

 

[edthecynic]

Except it doesn't say that. The bottom 20% went from $22,581 in 1980 to $22,244 in 1985, after which St Ronnie abandoned trickle down.

So we have one liberal who agrees my chart is correct, while trying furiously to examine one tree and simultaneously ignore the forest. That's progress. I think. For liberals, anyway.

Perhaps the rest of you liberals who say you don't understand the data or how to find it, should ask this one about it. He found it.

Those numbers exactly CONTRADICT your chart which is no where to be found in the source you claim the chart comes from. I linked to Table 678 and it doesn't match your chart.

Stop lying!

Statistical Abstract of the United States: 2007

 

[edthecynic]

There's no such thing as trickle down. Supply side works, when was it abandoned?

1985

 

[edthecynic]

Looked it up- I was wrong sort of- he lowered it to 28% in 1988.
http://webarchive.taxpolicycenter.org/taxfacts/Content/PDF/toprate_historical.pdf

You're correct (I was wrong that he lowered it to 28% in '86)...it was 1988....Sort of a parting "gift" to Reagan's cronies?

Which led to the first of 3 Bush Family Recessions.

 

[NYcarbineer]

Remember when W gave everyone $300 to spur the economy ?

Imagine if a dem did that!!

What is rarely remembered but very important to understand the mindset of Bush and the GOP is what he said in one of his first speeches to Congress in 2001.

He said that the current budget surplus (that he inherited) was a sign that Americans were being OVERTAXED.

That was his argument for lowering taxes. Why is that insane? Because running a surplus is the ONLY way you can pay down the debt.

 

[edthecynic]

Reagan greatly increased tax revenue to the govt when he cut tax rates,

Revenue decreased when Reagan cut taxes and only increased when he started raising taxes in the end of 1982.

 

[NYcarbineer]

There's no such thing as trickle down. Supply side works, when was it abandoned?

1985

After the Reagan Administration passed drastic tax cuts in 1981, it wasn't long before they realized that they'd made a terrible mistake, revenues were tanking, not rising, so what did they do?

In 1982 they passed the biggest tax INCREASE in history.

All the growth in the 80's that Reaganites yack about came AFTER that tax increase.

 

[Carl in Michigan]

Do you understand what a link is? I actually did search for your reference and it couldn't be found. So where did you get it from? Please share the link.

"Search Google for this link" will get you there.

I absolutely HATE demands for links. You're not children. Learn to do a little research. In this internet age, its really not hard -- just laziness.

 

[NYcarbineer]

Not to mention the payroll tax increase in 1983.

 

[Clementine]

I keep hearing from liberals (no surprise), that the economics Reagan relied upon, didn't work. They claim that they benefited only the top few percent of the population.

Reagan was elected in Nov. 1980, took office in 1981, and his first budget become effective in 1982.

How did people's income change from 1982 onward? Don't count "increases" due to inflation, count the REAL increase in what they earned.

In fact, ALL segments of the population increased significantly after Reagan passed his tax cuts, not just "the rich".

Another liberal lie refuted.

Sorry, libs, this blows your entire "Conservatism doesn't work" meme. In fact, conservatism provides more prosperity for ALL income groups, than any other.

(Source: Statistical Abstract of the United States, 2007, Table 678 and calculations)

View attachment 91241

It's just the usual attack on capitalism. Obviously, there is no such thing as trickle up economics. The left pushes the notion that government redistribution is the only way to go and they see anything else as unfair. They think it's totally reasonable to force half the people to work hard and give to the rest.

 

[WaitingFor2020]

Indeed. Ronald Reagan was in favor of outsourcing jobs overseas. His trickle down bullshit was trickle OUT, not trickle down.

And hasty changes of subject.

How so? Dream on because I am spot on.

 

[320 Years of History]

I haven't read anything other than the title of this thread.

As goes "trickle down" economics, the fact is that like Thomas Sowell, I'm not aware of there being any such actual theory in economics, let alone an economist who has advocated such a thing.

Some years ago, in my syndicated column, I challenged anyone to name any economist, of any school of thought, who had actually advocated a “trickle down” theory. No one quoted any economist, politician or person in any other walk of life who had ever advocated such a theory, even though many readers named someone who claimed that someone else had advocated it, without being able to quote anything actually said by that someone else.
-- Thomas Sowell, "Trickle Down” Theory and “Tax Cuts for the Rich”
​

Yet, the idea of trickle down economics must come from somewhere, and we know that millions of people are aware of the term -- if not the economics of it -- from a source other than the traditional sources of information for which we cannot produce any empirically testable evidence for it's being know of and believed in: the Bible, Quran, and other scriptural sources. Well, the answer is that the term -- which names the idea that tax cuts and other financial incentives for companies and individuals in the upper tiers of society fuel growth that indirectly benefits everyone, no matter whether he own a mansion or mud hut -- comes from Will Rogers. He once remarked that the Hoover Administration, via tax cuts, was handing out money to the rich in hopes that it would eventually “trickle down to the needy.”

Well, that sounds pretty plausible, and basically like a good thing, right? We all surely recognize that cutting everyone's taxes is at least to some degree a good thing for, well, everyone. So what's the problem with "trickle down," or what might be more aptly called "supply side economics" (SSE -- here's a video that explains it in very simple terms), which, frankly, is so "new" that it dates to the 18th century? Well, the answer depends in large measure on three elements:

• the factors of production and their relative roles within an economy,
• the state of income inequality, and
• the difference between before and after cut tax rates.

So let's look at these dimensions.

Factors of Production
Land, labor, capital and entrepreneurship are the factors of production. Suppliers use each in varying degrees to produce the stuff they sell. For supply side initiatives to work, producers must hire workers and pay them a reasonably decent wage at the time of the cuts and hirings. In order for that to happen, at least one of the following must be true:

• Production land, labor, entrepreneurship and/or capital:
  • Production capacity is materially below the profit maximizing level (PML)** of productivity/production and the society has enough workers with the requisite skills to meet the demand for labor given my maximum (or nearly so) productivity output. How material? Material enough to drive unemployment so that structural levels of unemployment are reached at PML production quantities. This state, as a starting point, produces a rapid boost quite soon after the starting point.
    
    What happens at that point? Everyone who wants to work is working (or will be "tomorrow") at a wage they and employers find acceptable and producers are producing all they can without each marginal unit produced "eating" into their profits. This state can be achieved by SSE tax cuts when, among other things, there is a significant rate of unemployment (8% or more) among adequately skilled workers.
    
    
  • Production capacity is below PML, but demand vastly outstrips supply. In this situation, the process described above happens again, but only after suppliers have adjusted -- invested in "something" -- so that they can achieve PML at a higher overall quantity of goods produced in order to meet the demand for them. It takes longer for the supply side benefits to kick in when this state is the economy's starting point.
  • The labor that exists to be hired (above) will be hired (and retained) rather than not hired because there exists capital that can replace labor more efficiently and effectively. It's pretty easy to understand why and under what circumstance(s) capitalists will engage labor instead of investing in capital; it's a very straight forward cost-benefit decision. When you get farther along in this post, you'll see why this is super important to the efficacy and prospect for success of supply side economics.
    
    
  • Capital can be purchased so as to allow capitalists to obtain their desired rate of return. This factor drives entrepreneurship (expansion and new) as well as labor and capital purchases.

Income Inequality:
Looking at Trump's current tax cutting proposals, one cursorily senses from the way his proposal is discussed that at least the proportionality of the cuts would be comparable across all incomes. The fact is, however, that is not that. Trump doesn't propose cut all rates by a given percent. Here's what he proposes.

Brackets & Marginal Tax Rates for Married-Joint filers (Brackets for single filers are ½ of these amounts):

• Less than $75,000 12%
• More than $75,000 but less than $225,000 25%
• More than $225,000 33%

Now here're a few things to keep in mind from an equality standpoint if one is evaluating the Trump personal income tax proposal. Keep in mind that if you itemize, marginal tax rates don't me a damn thing; if you do not itemize, marginal rates are relevant. What's it take to itemize? For the average American, home ownership is what makes it worth itemizing rather than using the standard deduction. (Approximately 63% of Americans own their home.)

• What is your effective (not marginal) tax rate now? I suspect that it's essentially what he's proposing. I know my marginal rate is higher than his proposed marginal rates, but my effective rate is just a bit shy of what he's proposed for the middle group. So, were I a wage/salaried worker, unless he trashes a bunch of the reductions for which I am eligible, and from what I can tell he's not, my effective tax rate seemingly won't change materially, even though the marginal rate to which I'd ostensibly be subject (the rate applicable to my gross income) is lower. But there's a catch, which I'll discuss a bit later.
  
  To understand what I'm talking about, take a look at what are the current average effective tax rates paid by most folks.
  
  
  
  Click on the image to view tables that will show you the average earnings of the folks in each group pictured above. The figures are from 2012, so they will be slightly different for 2015 and 2016, but I think they are close enough for you to get a decent enough sense of what I'm talking about, and unless one is right at the upper or lower ends of a bracket, one is likely in the same bracket now as one was in 2012.
  
  
• You'll note (if you clicked on the link) that he'd cap itemized deductions at $200K. What's the impact of that? Folks with predominantly wage and non-business and non-investment income will pay more in federal income tax. Folks with lots of business income and/or investment income either won't see much change at all or they'll realize far lower tax liabilities. Who is that? Doctors, attorneys, investment bankers, C-level and and other senior executive corporate employees (most of these folks greatest compensation comes from stock transactions -- capital gains -- not wages), pretty much anyone who earns their income via a partnership or S Corp. (If you don't understand pass through income, click on the link.)
  
  Consider the example of a married couple whose taxable income (after deductions and exemptions currently is $225K -- very solidly a (upper) middle class couple, but not rich by any stretch of the imagination -- for 2016. What would they pay?
  -- Currently, they'd pay at 28%
  -- Under the Trump plan, they'd pay at 33%. That's a 5% Trump-tax increase!
  
  That's an $11,250 increase in their tax bill. I suspect for most folks in that income range, that's about two or three mortgage payments. So, you tell me. Do you think that sum won't be seriously missed by a couple earning $225? I'll tell you that it without question would be.
  
  Look back at the chart above. What is the effective tax rate paid by couples who have about $40K/year in taxable income? If you clicked on the chart and looked at Table 7, you'd find that puts a $40K/year (after deductions, exemptions and credits) earner in the top 25% and they currently pay at an effective tax rate of ~7.25 to ~10% even though their marginal rate is 15% and Trump offers a 12% marginal rate.
  Now here's the catch for modest earners....If that couple's deduction profile (the deductions they are eligible to take and do take) is no different than it is under the current tax plan -- and those are details we have not been given -- all that'll change is their marginal rate -- the starting rate before deductions, credits and exemptions are calculated, not the actual rate at which they'll pay taxes.
  
  
• The Inequity "Catch" that Benefits High Income Folks:
  Remember the catch I mentioned earlier? Let's now look at doctors, attorneys, accountants, architects, engineering partners, advertising firm partners, many management consultants, pretty much anyone who's self-employed and doing well -- folks in the ~$400K+ per year range. Since their earned income from practicing medicine will likely flow to them via a pass through entity, that is, an S Corp, LLC or partnership, their earnings received that way will be taxed at...wait for it...15%!
  
  That's not the end of it. Ostensibly, Trump's tax plan appears to have a vendetta to bring against hedge fund and private equity fund managers for he proposes eliminating the carried-interest (interest as in "stake," not interest on money) preference and taxing that kind of income at the ordinary income rate of 33% instead of the current 20%.
  
  That sounds good, but there's a detail that's been left unclarified. What do you think that is? It's that private equity firms and hedge funds are often pass through entities, and Trump's plan is silent on whether that form of business organization would be denied to the partners of such entities. I happen to think that there is no way the folks who are among the richest of the rich are going to let Congress pass legislation that denies them access to the pass through entity provision I just discussed above and foists upon them a 13% marginal tax rate increase that they'll have to work all the harder to deduct down to whatever single-digit to low-teen rates they pay at today. That said, there are still ways around it, not the least of which is to take advantage of the "10% repatriation" provision Trump has proposed. (Note: Either of the last two strategies I mentioned require setting up shell companies -- a la Apple, Google and others -- that exist in name only.)

Marginal and Effective Tax Rate Impact:
I pretty much illustrated this aspect as part of the "inequity" discussion, so If you read the preceding section, you know what this is. If you didn't read it, scroll up and read it.


Connecting the Dots:
So with the foregoing concepts and tactics understood, what must one do to figure out the efficacy of supply side economics for oneself and then for the nation?

• Macroeconomically:
  • Ask yourself whether the conditions that militate for supply side's positive impact on GDP (aggregate demand) are such that supply side policy work as nicely as it did (nearly so, not quite as well, nowhere near as well, etc.) under Reagan. I happen to think they are not. Why? Because in the early 1980s, the U.S. had just passed the zenith of labor-intensive manufacturing. Factories still needed scores of people. Today, in the aftermath of the digital revolution, regardless of where a factory is, it will not require anywhere near the quantities of workers that were needed in the 1980s. Factory automation technology is now smarter, faster, more maintenance free, etc.
    
    
    
    Looking at the chart above, one can see what labor utilization was when, according to Trump, "America was great" and what it is now. With even just the near term capabilities of automation, do you really think manufacturers are going to ever return to the 1970s, or even 1980s levels of employment? I for one am not that naive.
    
    Here are some videos that'll give you a sense of just how automated factories are.
    
    Wood stacking:
    
    
    
    Sorting and packaging:
    
    
    
    Stacking pancakes
    
    
    
    A FANUC machine with a huge array of embedded tools used for a complex assembly process:
    
    
    
    Mitsubishi Auto Assembly
    
    
    
    
    Hopefully you watched the video here. If you did and you watched those videos above, you should understand why the supply side tax cuts won't do much for anyone who is an lowly or unskilled worker. Essentially, it's just going to be the next nail in the coffin of "unspectacular" (not meant derisively) workers, that is, folks who have only (mostly) physical skills to offer employers. The most likely reality is that the tax cuts will inspire companies to invest in new equipment, but "you" won't be among the folks who build that equipment unless you are highly skilled/educated and a "mind" worker rather than a "body" worker. I find it nigh impossible to believe that supply side policy will, this time round, stimulate consumption as it did in the 1980s, yet if it's to "work," that's what it must do.
• Microeconomically
  • After considering the macroeconomic situation, ask yourself where your employer will fit into that picture.
  • Now ask yourself where you see yourself (or your kids) fitting into that picture given the macro and micro econ landscape.
  • Now ask yourself where you see most other folks, "the middle class," if you will, fitting into the picture.
• Equity and Equality:
  • Here, just think about the tax cuts being proposed and ask yourself if you think it'll work out so that it's fair to you and folks like you. I'll tell you now that if you think it'll work out well for for the average American on this basis, you're more optimistic about their future than I am about their future.
    
    I hope I'm wrong and you're not, but I'm one of the folks who'll benefit from the pass-through provisions, and I'm not one of the folks who feels like s/he has no voice in the political process. I just know that if I'm right, there will be a very damaging class war in this country. I don't want that to happen, and that has a lot to do with why I oppose the idea of implementing supply side policy at this point in our history. The supply side policy expectations among the masses are high and the "writing on the wall" does not suggest there's any rational reason for it. Let's be real here. Trump may become President, but he won't have the power of Louis XIV or Henry VIII.

**Note:

Sorry, but the PML idea requires calculus to fully understand, but if you took calculus, you'll likely "get it" -- most likely remember it for it's the classic "stuff" of calculus -- even if you didn't study economics. If you didn't take economics or calculus, the idea is this: maximum profit is earned at some level of production less than 100% capacity to produce, thus suppliers will not (rationally) opt to produce one more unit of "stuff" once they reach the profit maximum levels of production. There are a lot of potential detailed reasons why suppliers behave this way, but at the end of the day, it's because as capitalists, owners do not care to produce one more unit and make less profit on it than they did for the preceding unit.

Please remember, this is an economics, not marketing, discussion; thus pricing strategies and other marketing tactics, all of which are ways producers competitively attempt to manipulate basic economic principles to operate more in their favor than they would absent implementing any marketing tactics. Marketing comes into play the instant the setting moves to monopolistic competition from perfect competition, or, to put it in layman's terms, when "brand" is perceived to have value (factors into the elasticity coefficient) to either the buyer or seller.

• Perfect competition --> the market for men's blue shirts -- A blue shirt is a blue shirt so long as it fits and one is will and able to buy it. The decision process is governed by reason.
• Monopolistic competition --> the market for Polo and/or Armani men's blue shirts. -- A Polo or Armani shirt may be "worth more" than another shirt from the same maker or from a competing producer. Either way, emotion (to some degree) along with reason factor into the buying decision.

 

[regent]

Is trickle-down the reason Reagan had to triple the national debt?

 

[initforme]

Just give the rich all that they want....they will get it anyway. If you are middle class in america you will spend your life toiling away...never to get one iota ahead. I don't care who wins this election between 2 people who have no business morals or ethics...heck trump has a very hard time paying some of his laborers. The truth about the us hurts doesn't it?

 

[initforme]

Some even believe the Chinese model of economics is effective. Stick em all in a factory, don't pay them, and pollute the air. Work yourtail off for the company and you will be rewarded....men...not really.

 

[The Professor]

Here you go.

(Source: Statistical Abstract of the United States, 2007, Table 678 and calculations)

View attachment 91241

Do you understand what a link is? I actually did search for your reference and it couldn't be found. So where did you get it from? Please share the link.

He didn't link to it because there is no "Table 678."

https://www.census.gov/prod/2006pubs/07statab/pop.pdf

Little-Acorn was right. Here is where I found Table 678 (the information presented was not in the from of a graph, however).

Statistical Abstract of the United States 2007 (Paper Edition)

 

[NYcarbineer]

I keep hearing from liberals (no surprise), that the economics Reagan relied upon, didn't work. They claim that they benefited only the top few percent of the population.

Reagan was elected in Nov. 1980, took office in 1981, and his first budget become effective in 1982.

How did people's income change from 1982 onward? Don't count "increases" due to inflation, count the REAL increase in what they earned.

In fact, ALL segments of the population increased significantly after Reagan passed his tax cuts, not just "the rich".

Another liberal lie refuted.

Sorry, libs, this blows your entire "Conservatism doesn't work" meme. In fact, conservatism provides more prosperity for ALL income groups, than any other.

(Source: Statistical Abstract of the United States, 2007, Table 678 and calculations)

View attachment 91241

It's just the usual attack on capitalism. Obviously, there is no such thing as trickle up economics. The left pushes the notion that government redistribution is the only way to go and they see anything else as unfair. They think it's totally reasonable to force half the people to work hard and give to the rest.

Capitalism steals from the working class. Socialism returns the stolen goods.