Henry3

by Henry Oliner

‘Trickle down’ is the preferred pejorative of the left towards any tax cut that benefits those who actually pay taxes.  The people who use it sound like idiots to anyone with a basic knowledge of economics.  It is a tool for those who prefer a demon to any understanding.

Money trickles downs, trickles up, and spreads around.  It pays taxes, funds welfare checks, hires employees, buys equipment and funds consumer purchase. It flows where it is least impeded and most welcomed and respected.  Money is an accumulation of a vast network of human action.

When you pay a thousand dollars for a new iPhone are you any poorer? You have willingly decreased your cash and increased your personal equipment. You may be joyful on your purchase or you may be resentful, but if the phone was not worth more than the money you spent you would not have bought it.

Our limited economic measurements may record a transfer of wealth from you to the shareholders of Apple.  But you are no poorer from the transaction.

Would you work an additional 20 hours a week for a substantial pay if the tax rate on your additional earnings was 100%?  Would you be more likely to take the job if the tax rate was cut to 40%?  If your answer is yes to the second question, then congratulations, you understand basic economics and the Laffer Curve.

We can debate the proper rates and the tax system. Claims are made from the right that all tax cuts pay for themselves. This is untrue and is as ignorant as the ‘trickle down’ mantra.

“Trickle down” may or may not be true based on numerous other factors. Regulatory and legal burdens, inconsistency and political uncertainty, debt loads, monetary policy, international competitiveness, unemployment levels, and other factors will impact the effects of tax policy.

But ‘trickle down’ is always an incomplete picture, meant to mislead  by a few, but more often a simple and obvious display of economic ignorance recited as a mindless mantra.