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Zirpoli: Research discredits tax cuts and trickle-down economics | COMMENTARY

One of the great economic myths pushed by Republicans for decades is that tax breaks provided for the rich would trickle down to everyone else and boast to the general economy. This hypothesis was made especially popular by President Ronald Reagan in the 1980s and continued into President Donald Trump’s administration when in 2017 about $1.5 trillion in tax cuts was a windfall for the richest 20% of Americans, according to the Tax Policy Center. Like many Republicans before him, Trump stated that the tax cut would pay for itself with economic growth. They were wrong and studies have shown just how wrong they were and the serious consequences of their failed policies.

A study by David Hope and Julian Limberg provided more research demonstrating that trickle-down economics is a false and failed policy. Hope is an assistant professor in political economy and Limberg is an assistant professor in public policy. Both work at King’s College London.

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Their study looked at the effects of tax cuts for the rich “across a broader range of countries and time periods” than many studies looking at the effects of one country’s tax policies. The study looked at the effects of “major tax cuts for the rich in the United States and 17 other advanced economies over a 50-year period, from 1965 to 2015.”

The bottom line of their findings is that tax cuts for the rich help the rich, not the middle class or the poor. In fact, their research showed that these tax cuts went “hand in hand with soaring inequality” between the rich and everyone else. There is little to no trickle-down impact. The study also found “no substantial, statistically significant effects on economic growth or unemployment in the short or medium term.”

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The study documented “major reductions in taxes on the rich in the U.S. and other advanced economies” even as “the rationale for keeping taxes on the rich low is weak.” In fact, the repeated reduction in taxes for the rich has been the major contributor to America’s annual deficit and growing debt. It has also contributed significantly to the lack of available investments in infrastructure and social services such as education and health care.

President-Elect Joe Biden wants to increase taxes for individuals making over $400,000 per year to both slow the growing national debt and provide funding for important national investments. But he will likely face a Republican Senate that will, as they have for decades, protect the richest Americans over the needs of the nation. In fact, Biden’s plan hardly puts a dent in the tax breaks given to the richest Americans over the past several decades.

There was a time in American history when the rich contributed more than their fair share when our nation was in need or in times of crisis, as outlined by the Bradford Tax Institute. For example, the 1916 and 1917 Revenue Acts pushed the highest income tax rate to 77 percent to help pay for the defense of our nation during World War One. It was lowered after the war.

During the Great Depression in 1932, Congress pushed the highest rate back up to 63 percent so the wealthiest Americans could help pay for necessary social programs. And in World War II, the highest rate peaked at 94 percent to help pay for the war.

Today, instead of the richest Americans helping to pay, for example, for the Great Recession of 2008 or the COVID-19 pandemic, Republicans gave them more tax breaks which did not “pay for themselves” but simply added to the national debt. In fact, from 2007 to 2016, according to Pew Research, the median net worth of the richest 20 percent of Americans increased by 13 percent while “the worth of families in lower tiers of wealth decreased by at least 20 percent.” So much for trickle down.

The growing inequity continues today. In 2020 alone, according to USA Today, “America’s 614 billionaires grew their net worth by a collective $931 billion.” All received a tax cut in 2017. Yet, today, Senate Leader Mitch McConnell worries that giving Americans $2,000 might go to some people “who don’t need it.” America’s billionaires didn’t need millions of dollars in tax cuts in 2017 or in previous years, but Republicans gave it to them anyway.

Tom Zirpoli is the program coordinator of the Human Services Management Program at McDaniel College. He writes from Westminster. His column appears on Wednesdays. Email him at tzirpoli@mcdaniel.edu.

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