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> We find tax cuts for the rich lead to higher income inequality in both the short- and medium-term. In contrast, such reforms do not have any significant effect on economic growth or unemployment. Our results therefore provide strong evidence against the influential political–economic idea that tax cuts for the rich ‘trickle down’ to boost the wider economy. The conclusion taken from the abstract.
an unsurprising find, considering its birthright was US president Ronald Reagan who had invented it out of whole-cloth to evangelize and tantalize neoliberal reforms during his presidency. It strikes me as fascinating that so many of these reforms, once touted as essential and prudent, have over two or more decades proven to be outright political grifting.
From the abstract: > We find tax cuts for the rich lead to higher income inequality in both the short- and medium-term. In contrast, such reforms do not have any significant effect on economic growth or unemployment. Our results therefore provide strong evidence against the influential political–economic idea that tax cuts for the rich ‘trickle down’ to boost the wider economy. I'd be interested in hearing from those…
In the distant--but not too distant--past, "the rich" often meant business owners who might make a lot of money, but employed a lot of people. The idea of cutting taxes would mean more available capital for business expansion. It's not really the case so much anymore. A decent Silicon Valley salary would put you in the top 10% of earners, and a Python programmer doesn't usually hire a lot of people. Top 1%ers tend to…
It's doubly bullshit given that businesses are also separate taxable entities. Don't take the money out of the business if you don't want it to be taxed as income; invest it back in so it becomes an expense, and neither you nor the business (effectively) pay taxes on it.
So, no. Even with a solid industrial base, "trickle down economics" was still just as obviously bullshit.
Question I'm asking in good faith: will this proof have any consequence for the bottom 99.99%? Is there a way this research helps shape policy?
Money has an insurance effect. Simply having money lets you pay off random expenses. It also doesn't spoil like goods. If we had a grain money system, then the central bank would pass the cost of grain storage onto the holder of the dollar bill which would give the lender an incentive to lend it out even at 0% interest, which protects the lender from the storage costs. This is known as liquidity preference. The borrower has to compensate the lender for giving up the liquidity benefits of money.
Right now cash itself has no storage costs, so nobody will lend it at 0% interest.
In theory giving the rich money through lower taxes lowers the interest rate because they lend it out. However, as I said, there is no mechanism that actually lets it fall to 0% (extreme cases like deflation can in theory justify negative rates). If you were to charge a negative interest rate on a bank account to enable 0% loans, then people just pull their money out and hold cash instead.
The free market basically ends the moment markets are saturated and everything only makes enough money to cover its own costs with 0% profit. This is one of the areas where Marx was correct. Once profit is gone, the system collapses because someone forgot to enable the 0% interest feature of money.
From the abstract: > We find tax cuts for the rich lead to higher income inequality in both the short- and medium-term. In contrast, such reforms do not have any significant effect on economic growth or unemployment. Our results therefore provide strong evidence against the influential political–economic idea that tax cuts for the rich ‘trickle down’ to boost the wider economy. I'd be interested in hearing from those…
Do high taxes have any significant effect on economic growth or unemployment?
I used to believe taxes were a good way to redistribute wealth. That is until I moved to San Francisco and saw how a welfare super state prioritizes its spending. $75,000/tent/year homeless camping sites, 2 million heroin needles, community ambassadors who aimlessly wonder the mission district with multilingual pamphlets on how to sign up for welfare benefits. Billions funneled to nonprofits, who in turn support poli…
From the abstract: > We find tax cuts for the rich lead to higher income inequality in both the short- and medium-term. In contrast, such reforms do not have any significant effect on economic growth or unemployment. Our results therefore provide strong evidence against the influential political–economic idea that tax cuts for the rich ‘trickle down’ to boost the wider economy. I'd be interested in hearing from those…
What people think causes wealth inequality: Low tax rates on higher income people.
What actually causes wealth inequality: Corporate mergers, consolidation, lack of antitrust enforcement.
When does Zuckerberg have more wealth? When Facebook has a 900 billion dollar market cap and he pays a 70% tax rate, or when Facebook has a ten billion dollar market cap and he pays a 30% tax rate? (Hint: 30% of 900 billion is a lot more than 70% of ten billion. Also, he doesn't pay the tax until he sells anyway, which he doesn't.)
The problem with all of these studies is that people think the top tax rates were significantly reduced during Reagan, which is around the same time we stopped enforcing antitrust, so they see the effect of the latter and ascribe it to the former.
But we can distinguish them because the first one never actually happened. The nominal tax rates decreased a lot during Reagan, but that's because it coincided with the closure of a ton of tax loopholes that meant that high income people never actually paid those rates. Government revenues as a percent of GDP have basically been flat since the end of WWII and are about the same now as they were under Kennedy and LBJ:
https://fred.stlouisfed.org/series/FYFRGDA188S
So any study that purports to use this to show what happens when you "lower taxes" faces the trouble that the tax lowering never really happened in practice.
I used to believe taxes were a good way to redistribute wealth. That is until I moved to San Francisco and saw how a welfare super state prioritizes its spending. $75,000/tent/year homeless camping sites, 2 million heroin needles, community ambassadors who aimlessly wonder the mission district with multilingual pamphlets on how to sign up for welfare benefits. Billions funneled to nonprofits, who in turn support poli…
A tax on work basically tells us to use people as little as possible, e.g. use more automation than necessary. You end up with a situation where you both have too many robots and too many unemployed people.
I'm not sure using taxes as a way to combat income equality is effective either. Just because taxing the rich less allows them to make more money does not imply taxing them more allows the non-wealthy to prosper.
The thing people seem to forget is that taxed money doesn't just disappear. It right back into the economy. The target, predominately, is the working class, either directly via Gov't employee wages, or social programs. Or it goes back indirectly, through Gov't contractors. At which point it filters back up the system to the rich.
From the abstract: > We find tax cuts for the rich lead to higher income inequality in both the short- and medium-term. In contrast, such reforms do not have any significant effect on economic growth or unemployment. Our results therefore provide strong evidence against the influential political–economic idea that tax cuts for the rich ‘trickle down’ to boost the wider economy. I'd be interested in hearing from those…
I don't think this is surprising either. The whole "trickle-down economics" arguments for such tax cuts have always sounded... bullshit (for lack of a better word), exacerbated by the fact that decades of it (since the Reagan era in the US, for example) has only served to make the rich richer, poor poorer and erode the middle class completely. If it was a brilliant idea (i.e. the idea that the the only thing holding…
We could just as easily be outraged that some people have more life expectancy than other people. Seems unfair that a person who is 60 and has 15-20 years of life left has to work 40 hours per week to maintain their lifestyle which is exactly the same amount of hours a 20 year-old who has 55-70 years remaining expects to work in a week.