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Trickle Down Economics Debunked in One Chart

On Wednesday, the House of Representatives handily passed a one-year extension of the Bush-era tax cuts, rejecting President Obama’s plan to discontinue the cuts for those making over $250,000 annually. This vote passed with what looked like minimal debate and very little attention to the desires of constituents. The automatic response was that taxes should never be raised for anyone in a recession. This logic harkens back to Reagan’s “trickle-down economics,” which apparently is still interpreted as gospel by Congress. The problem is that it does not work.

A very general part of trickle-down economics is that by leaving profits in the pockets of millionaires and billionaires, they will have more money to invest in business, or, being the good Keynesians that they inevitably are, spend on goods and therefore stimulate the economy. However, this chart by NPR shows that the rich do not do these Keynesian things with their money. They sit on it – placing it in savings accounts so that they may retire in luxury. The justification for tax cuts for the upper class seems to be unwarranted, and many Americans evidently think so too.

A recent study by The Atlantic found that a vast majority of Americans would prefer a more equal distribution of wealth than currently exists in the United States. While simultaneously decrying “socialism,” 92% of those who participated in this survey preferred a fictional distribution of wealth even more equal than that of Sweden to the distribution of wealth found in the U.S.  Even more striking was that the party line between Republicans and Democrats partaking in this survey was almost indistinguishable.

So why does the U.S. continue to promulgate one of the most unequal societies in the world when it would appear that its citizenry would prefer to have it differently? I believe that first and foremost these two incongruous aspects of our society highlights that Americans have no idea how unequal our society is. The lower class is so thoroughly subjugated that they can be easily ignored.  Labor movements are squashed and forgotten (see reelection of Governor Scott Brown in Wisconsin earlier this summer), the starving are condemned as lazy (see entitlement spending cuts and reaction to the word “welfare” among much of American society), and the “American Dream” has been distorted into the “the American Dream worked for me because of the system in place but I have no obligation to help that dream be achieved by those who seek the same opportunities I was fortunate enough to have” (see the debate on the “Buffet Rule” earlier this year). 

Second is a misunderstanding of the purpose of taxes. Taxes are part of living in a society; they are what fund the institutions that allow people to “pull themselves up by their own bootstraps.”  The more money you make, the more you gained from the societal structure in place, and therefore the more you owe to those very institutions that allowed you to get where you are. That is the basic and logical philosophy behind a graduated income tax.  We need to return to a truly graduated income tax where people pay proportionally to how much they make. If you don’t want to pay taxes, you shouldn’t make your money using American social constructs. “The American Dream” can be reinterpreted to convey the hope that everyone, through a well-funded infrastructure (thanks to taxes), can eventually repay their debt to society for helping them rise to affluence by gladly paying their 39% income tax. I am quite certain that those who struggle to make ends meet would love to complain about a higher tax bracket for their abundant funds.

America sees this logic as clear. So the final factor explaining the fact that we remain incredibly unequal can only be the influence of money on Washington D.C. Clearly we do not live in a representative democracy if the majority of people wants something and yet congressional votes portray the opposite of those desires. The United States may very well see a radical revolution of capitalist values in order to change our political structure from “one dollar, one vote” to “one person, one vote” for the first time in history. I desperately hope that the American people do not tolerate a government that does not reflect our desires for long.

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