Exploring Trickle-Down Economics (Reaganomics)

I will be explaining both common viewpoints about Trickle-Down Economics: The viewpoint that Trickle-Down Theory helps all of America and the viewpoint that it only benefits the top 1% whose taxes are cut. First, I will start with a background of this economic theory:

The Trickle-Down Theory of Economics was a policy enacted by Former President Ronald Reagan as an answer to the economic stagflation under his predecessor, Gerald Ford. It called for widespread tax cuts, decreased social spending, increased military spending and the deregulation of domestic markets.

Positive:

Proponents do not deny that one of the express purposes of this theory is to decrease corporate tax spending. This is a result of the theory that when the top 1/10 of 1%, deemed as the job creators and heads of corporations, pay less taxes, they are able to invest more in America by hiring more and increasing wages, all for the working class.

Trickle-Down Theory
Image Source: http://article.wn.com/view/2016/01/11/Trickle_Down_Economics_Theory_Effect_Does_It_Work/

Reaganomics, named after its founder Ronald Reagan, promises to naturally distribute new wealth by taking it away from the government and into the hands of those that can create jobs. It also calls to ease the tax burden on small businesses which need every last penny to reinvest.

This is supposed to start a domino effect in which both the small businesses and large corporations have more money to reinvest, raise wages, and hire more workers. More workers means more employed Americans paying taxes which in turn reimburses the government for the initial tax cuts.

Trickle-Down theory

 

Negative:

There are many who claim that the trickle-down economic plan has never worked in achieving all of its goals. Critics claim that although Reaganomics was supposed to help America grow as a whole, it has only really benefitted the top 1% as shown through this graphic:

Trickle-Down theory

It seems that the increased wealth given to the 1% had not gone to workers’ wages but to the wages of those that initially received the tax cut. Essentially, much of the income earned by the rich is saved abroad, contributing to employment and growth overseas, reducing incomes of the middle class at home (2).

Trickle-Down theory
Image Source: https://johnhively.wordpress.com/2015/08/16/trickle-down-economics-started-it-all/

Furthermore, it had taken away from social programs such as social security, social welfare, and other programs designed to give people a hand up from poverty. When first enacted under Ronald Reagan in the 80s, this economic plan took away funding from certain government programs that aid poverty-stricken people.

Not only did the wages of the bottom 99% not benefit from this theory but the standard of living for the public decreased as public services were reduced in quality. Ex: public schools, social welfare, public health programs, etc. These public goods are not in the interest of the 1%. The 1% are likely to rally against the public funding of these goods due to being the primary benefactors through taxes and the least likely to use these goods.

Information Sources:

(1) http://www.investopedia.com/terms/r/reaganomics.asp

(2) http://welkerswikinomics.com/blog/2013/01/08/income-inequality-and-standards-of-living-does-a-rising-tide-lift-all-boats/

Header Image Source: https://www.youtube.com/watch?v=vaDbP5wEhC8

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