“I am sick and tired of trickle-down economics,” says President Joe Biden. “It has never worked.”
Of course it has never worked. It has never worked because it has never been tried or even proposed. Trickle-down economics is a myth — a left-wing parody of what conservative politicians are supposed to believe.
The phrase was invented by Democrats in the 1930s as a way to caricature the imagined economic strategy of the Coolidge administration. Even in those days, it was a travesty. Coolidge never argued, and never thought, that the best way to make the poor richer was to make the rich richer. Rather, he believed that cutting taxes across the board would stimulate the whole economy.
And he was right. In 1921, Americans earning over $100,000 paid federal income tax at a rate of 73%. By the time Silent Cal left office in 1929, that rate had been cut to 24%. The result? The tax yield rose from $700 million to more than a billion, and the proportion paid by those earning more than $100,000 actually rose from 30% to 65%. In other words, if you want the rich to pay more, whether in absolute or relative terms, flatten your tax rates.
The fact that “trickle down” is a trick of propaganda did not stop it being trotted out regularly over the next hundred years, and with great success. Lefties love to fulminate against it. I just typed “trickle-down economics” into Google and was prompted with “debunked,” “doesn’t work,” and “Reagan.” What I couldn’t find was anyone actually proposing the idea. Yet the notion keeps going, zombielike, dragging its malodorous, bandaged corpse forward, however often it is shot.
Trickle-down is a conspiracy theory as outlandish, in its own way, as QAnon. The difference is that lots of respectable people believe in it. When I ask lefties to give me an example of a single conservative economist proposing trickle-down, they often respond by pointing me to columns by liberal economists such as J.K. Galbraith or Paul Krugman. President Barack Obama used to rail against this phantasm, as do leftist leaders throughout the English-speaking world. Biden is hardly an outlier.
So, let’s humor the old boy and ask who exactly he expects to implement this bizarre doctrine. The Democrats control the White House and both chambers of Congress. Even if some conservative could be found arguing that the best way to help the poor was to give the rich more to spend on their art collections, it would make no difference. So, what prompted his remark?
The British media self-importantly assume that the president’s remarks are aimed at Liz Truss, the Thatcherite prime minister, whose first budget did indeed cut, flatten, and simplify tax rates, prompting furious protests from Labour and the leftist press to the effect that (you guessed it) “trickle down” doesn’t work.
Implicit in the criticism, on both sides of the Atlantic, is the assumption that the primary aim of all fiscal policy must be to help the poor. Tax cuts are never assessed in terms of their stimulus effect. Rather, we are presented with bar charts showing how much more they help the people at the top.
But this is, if you think about it, an argument against ever cutting tax. There is no way to reduce taxation without chiefly benefiting those who pay taxes in the first place. Cutting taxes may indeed help the poor, by growing the economy and creating more well-paid jobs. But that is a happy side effect. The poor should primarily be helped by targeted benefits, not by tax policies. To put it another way, general economic policy should aim to help poor people as citizens rather than as poor people. It should be kept separate from welfare policy.
That might seem a statement of the obvious. Yet, last week, the International Monetary Fund decided that it was in the equality business rather than the economic stability business. It told the United Kingdom “to consider ways to provide support that is more targeted and reevaluate the tax measures, especially those that benefit high-income earners.”
Let’s spell this out. In response to the pandemic, almost every government in the world increased taxation and spending. They did not do so to help the poor but as an emergency response to the lockdowns. Now, they want to return to somewhere closer to their 2019 budget levels.
This necessarily means cutting spending, borrowing, and taxes. Not because a more competitive economy is a substitute for a safety net, but because we cannot afford to carry on with current spending levels. This is not about “trickling down.” It’s about staying solvent.
