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October 4, 2008

Economy – Trickle Down Theory Is A Myth: Money Doesn’t Trickle Down But Pain Crawls Up

 What is the trickle-down economy theory? It’s the set of economic policies based on the concept that you provide economic incentives to the wealthy by cutting their taxes (by letting them keep their money) while at the same time deregulating industry, you’ll let loose a tsunami of economic activities that will enrich even the least advantaged among us.

Wow, this sounds great in theory but as we all know now, it doesn’t work.

Trickle-down is largely a rationale for upward redistribution that’s been kept alive by those who benefit from it by paying less tax. Reagan put this stuff on the map, GW Bush brought it back with a vengeance and McCain intends to take it even further. McCain’s policy calls for an extension of the Bush tax cuts plus he adds pork fat of about $75 billion more in corporate tax cuts on top of that!

In the 1990s when Clinton came into office he would have nothing to do with allowing the rich to pay less taxes; he instead cut taxes on lower-income households and raised taxes on the wealthiest. Obama takes a similar approach.

Because of lowering taxes on the middle-class and raising the taxes on the wealthy in hind sight we see evidence of the strong real growth in median incomes and sharp declines in poverty that occurred during the 1990s compared with the opposite movement in the 2000s with Bush’s policies.

The income for the middle-class grew by 10% or by $5,200 in the 1990s (1989-2000); these same households saw a decrease of $2,000 in 2000s under Bush when he lowered taxes for the wealthy.  If Bush had kept Bill Clinton’s policy of lowering the taxes for the middle-class, income would have continued to increase in the 2000s and middle class median income would have gone up $3,600 instead of falling $2,000.

So why do the republicans continue to push tax cuts for the rich?  It seems that it is as simple as ‘because they and their friends are rich’ and it benefits them and their friends including heirs and heiresses.  That’s straight-talk.

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