Does Trickle-Down Economics Actually Work?

To the extent the Republican Party has any economic platform at all, it’s trickle-down economics. Unfortunately for the GOP, it’s based on three giant myths. It’s time to debunk them once and for all.

Myth #1: Tax cuts for corporations and the rich create more and better jobs. 

Wrong. Corporations used Trump’s giant tax cut to buy back shares of their own stock and boost share prices. From 2017 to 2018, stock buybacks increased by a staggering 50 percent. Lowe’s spent $10 billion on stock buybacks in 2018, and then fired thousands of workers with no notice or severance. Walmart and AT&T also laid off thousands of workers. 

And contrary to the claim that the tax cut would boost wages by $4,000 a year, a recent analysis found that in the year after the Trump tax cut, wages increased by about the same as they did before it, and then slowed. 

Tax cuts for rich individuals don’t trickle down, either. The rich simply get richer. Two years before Ronald Reagan’s first tax cut, the richest 1 percent of Americans owned less than 23 percent of the nation’s wealth. A decade later, after two rounds of tax cuts for the rich, they owned over 28 percent. By 2019, after more tax cuts for the rich by George W. Bush and Donald Trump, people at the top owned almost 35 percent of America’s wealth. Meanwhile, average wealth barely budged for the middle class, and went negative for the bottom 10 percent.

It gets worse. During this pandemic alone, America’s 664 billionaires have added $1.3 trillion to their collective wealth and now own over $4 trillion. That’s almost double the wealth of the bottom half  — 165 million Americans.

But nothing has trickled down. Even before the pandemic, wages stagnated.

Myth #2: Tax cuts for big corporations and the rich spur economic growth.

Baloney. Not even Ronald Reagan’s surging economic growth rate was driven by tax cuts. It was driven by low interest rates and humongous government spending. 

George W. Bush promised his 2001 and 2003 tax cuts would pay for themselves (sound familiar?) by spurring economic growth. That didn’t happen. A 2017 study led by one of Bush’s former chief economists found that the tax cuts had no significant effect on growth. In fact, growth declined, slowing to just 2.8 percent from over 3 percent during the Clinton years. The economic expansion under Bush was one of the weakest expansions since World War II.

Donald Trump claimed his tax cut would be like “rocket fuel” for the economy, and would spur annual growth of 3 percent. After its first year, growth slowed to 1.9  percent.

Finally, a recent study analyzing tax data spanning 50 years from 18 advanced economies found that tax cuts for the rich only benefited the rich and had no effect on job creation or economic growth. I, for one, am shocked.

Myth #3: Deregulation spurs economic growth.

More rubbish. The cost savings from deregulation go to corporate executives and major investors, while the costs and risks land on the rest of us. 

Trump’s Environmental Protection Agency rolled back regulations on everything from clean air and water standards to dangerous chemicals in products — benefiting chemical and fossil fuel executives and investors while forcing everyone else to deal with polluted air and toxins. 

His Labor Department loosened child labor laws and scaled back the number of workers eligible for overtime pay. Companies raked in savings, while workers were exploited. 

And with the help of Congress, he rolled back banking regulations put in place after the 2008 financial crisis — to the benefit of rich Wall Streeters and the detriment of everyone else.

Don’t forget Ronald Reagan’s deregulatory agenda allowed for-profit healthcare companies to flourish, contributing to the out-of-control health care costs we’re saddled with today. And that deregulation of the financial sector was a major cause of the 2008 crash, as it allowed banks to make risky bets.

In other words, the Republican trickle-down claim that deregulation helps us all is baloney. Regulations that protect you and me from being harmed, fleeced, shafted, injured, or sickened by corporate products and services are clearly worth the cost.

So don’t fall for trickle-down nonsense. Making big corporations and the rich even richer through tax cuts and regulatory rollbacks doesn’t make the rest of us better off. It just makes big corporations and the rich even richer.

On Labor Day, just eight weeks before one of the most consequential elections in American history, it’s useful to consider the economic reality that fueled Donald Trump’s victory four years ago.

No other developed nation has nearly the inequalities of income and wealth found in the U.S., even though all have been exposed to the same forces of globalization and technological change. The three richest people in America have as much wealth as the bottom half of all Americans combined, even as 30 million Americans reported their households didn’t have enough food.

American capitalism is off the rails.

The main reason is that large corporations, Wall Street banks and a relative handful of exceedingly rich individuals have gained enough political power to game the system.

Chief executives have done everything possible to prevent the wages of most workers rising in tandem with productivity gains, so most gains go instead into the pockets of top executives and major investors.

They’ve outsourced abroad, installed labor-replacing technologies and switched to part-time and contract work. They’ve busted unions, whose membership shrank from 35% of the private-sector workforce 40 years ago to 6.2% today. They’ve defanged antitrust enforcement, allowing their monopolies free rein.

The so-called free market has been taken over by crony capitalism, corporate bailouts and corporate welfare.

This massive power shift laid the groundwork for Trump. In 1964, almost two thirds of Americans believed government was run for the benefit of all the people. By 2013 almost 80% believed government was run by a few big interests.

Much of the political establishment wants to attribute Trump’s rise solely to racism. Racism did play a part, to be sure, but racism’s sordid history in American politics long predates Trump.

What has given Trump’s racism – as well as his hateful xenophobia and misogyny – particular virulence has been his capacity to channel the intensifying anger of the white working class. It is hardly the first time a demagogue has used scapegoats to deflect public attention from the real causes of its distress.

Trump speaks the language of authoritarian populism but acts in the interests of America’s emerging oligarchy. His deal with the moneyed interests was simple: he’d stoke divisiveness so Americans wouldn’t see how the oligarchy has taken over the reins, twisted government to its benefit, and siphoned off the economic rewards.

He’d make Americans so angry at each other that they wouldn’t pay attention to CEOs getting exorbitant pay while slicing the pay of average workers, won’t notice the giant tax cut that went to big corporations and the wealthy, and won’t be outraged by a boardroom culture that tolerates financial conflicts of interest, insider trading and the outright bribery of public officials through unlimited campaign donations.

This way, the moneyed interests can rig the system while Trump complains that the system is rigged by a “deep state.”

Notwithstanding all this, Trump’s inexcusable failure to contain the coronavirus is having a larger impact on swing voters than the divisiveness he foments. Death has a way of concentrating the mind.

But if Joe Biden is elected, he would be well advised to remember the forces Trump exploited to gain power, and begin the task of remedying them. The solution is not found in mere redistribution of income. It is found in redistributing power.

If wealth continues to concentrate at the top, no one will be able to contain the corrupting influence of big money on the American system and the anger it unleashes. As Justice Louis D Brandeis once said, “We can have democracy in this country or we can have great wealth concentrated in the hands of a few, but we can’t have both.”

My wife and I have been warned that we may need to evacuate because of fires ravaging the Bay Area.

The climate crisis is to blame for these fires, which are growing in number and intensity every year. It’s also to blame for the increasing number and virulence of hurricanes now hitting the Gulf and Southeast, flash floods along the Eastern seaboard, and fierce winds across middle America.

Two hurricanes are now threatening the Gulf coast. The Gulf has never before had two hurricanes at the same time.  

In early August, Illinois and Iowa were hit with winds of up to 110 miles per hour. Homes were leveled. At least 10 million acres of crops were destroyed. Many people are still without power.

Trump isn’t singularly responsible for climate change, of course. But he’s done nothing to stop it. In fact, he’s done everything he can to accelerate it.

No one speaking at the Republican convention mentioned Trump’s abandonment of the Paris Agreement, his rollback of environmental regulations, or his boundless generosity to the fossil fuel industry.

Yet, facing possible evacuation, I’ve been thinking about all this in a newly personal way. So have many others, including, I suspect, some people who voted for Trump last time, who reside in the Gulf states, the eastern seaboard, and the Midwest.

It’s one thing to understand climate change in the abstract. It’s another to live inside it.

I recently got an email from a woman living in North Carolina whose house was destroyed in a flash flood. She describes herself as a lifelong Republican who’s now a “born-again environmentalist.” She said she’ll be voting for Joe Biden.

It’s much the same with the coronavirus. The gross numbers tell a horrible story. Last Thursday alone, 1,090 Americans died of it. Only 5 died of it in Canada that same day, 6 in the UK, 12 in France, 16 in Japan, 16 in Spain, and 10 in Germany.

Yet not even these numbers hit home the way it does when you know someone who has perished or nearly perished from this disease. I know two who have died. A good friend came close. Like me, a growing number of Americans are experiencing the coronavirus personally.

Trump isn’t solely responsible. America’s public health system was never up to the task of dealing with a pandemic. But Trump’s stream of lies, denials, and refusals to take responsibility have allowed the disease to ravage America.

These days, Trump’s only mention of the pandemic is to blame China or claim the official numbers are exaggerated. Many of Trump’s followers believe him. But just as with the floods and windstorms and fires, an increasing number who have experienced Covid-19 personally have become hardened against his lies.

So, too, with the economic devastation that’s come in the wake of the pandemic. Tens of millions of Americans are unemployed. Many are growing desperate. Almost everyone knows someone who has lost a job, or whose wages have been cut.

There’s an old saying that “the personal is political.” People understand politics most profoundly when it’s connected to their own lived experience.

At the Republican convention, Trump and his enablers claimed Democrats want to turn America into a socialist state. They issued racist dog whistles about “rioters and looters” in American cities. They conjured up “deep state” conspiracies. They lied about Joe Biden.

Some Americans believe this drivel. But I suspect the lived experience of most others – including many who voted for Trump in 2016 – is more convincing. A threat to one’s life or the lives of loved ones, or the imminent loss of a job, concentrates the mind.

After almost four years, tens millions of Americans have felt the consequences of his rotten presidency first-hand. Trump’s malfeasance is now more palpable than his fearmongering. The personal is political.  

Since the start of the pandemic, American billionaires have been cleaning up. As more than 50 million Americans filed for unemployment insurance, billionaires became $637 billion richer. Facebook’s Mark Zuckerberg’s wealth has ballooned 59 percent. Amazon’s Jeff Bezos’s, 39 percent. Walmart’s Walton family has added $25 billion.

Big drug company CEOs and their major investors are doing nicely, too.  Since the start of the pandemic, Big Pharma has raised prices on over 250 prescription drugs, 61 of which are being used to treat Covid-19.  

Apologists say this is the “free market” responding to supply and demand – the barons of Big Tech, online retailing, and Big Pharma merely providing what consumers desperately need during the pandemic.  

But the market also operates under laws that ban profiteering, price gouging, and monopolizing, and that tax excess profits in wartime. Where did they go?

The Trump administration hasn’t enforced them.

Trump is also ignoring laws that ban trades on insider information. The White House is distributing billions in subsidies and loans to select corporations – enabling CEOs and boards to load up on stocks and stock options just before deals are announced, then rake in fat profits after stock prices surge.

Insiders from at least 11 companies have sold shares worth over $1 billion after such announcements, according to an analysis by the New York Times.

In late June, a San Francisco company called Vaxart announced that the Trump administration had selected it to develop a coronavirus vaccine. Presto. The value of stock options distributed to company insiders just weeks before increased six-fold. Stock options held by Vaxart’s CEO went from $4.3 million to more than $28 million.

Moderna, based in Cambridge, Mass., has never brought a vaccine to market, but company insiders have sold some $248 million of shares – most of them after the company was selected in April to receive Trump funding. (Moderna plans to sell its vaccine for profit although taxpayers have footed its research and development.)

The most blatant involves the venerable old camera and film maker, Kodak. On July 28, Trump announced a $765 million deal with the firm to bring drug production back to the United States. He called it “one of the most important deals in the history of the U.S. pharmaceutical industries,” even though Kodak isn’t even a pharmaceutical company.

Before the announcement, Kodak had handed its board of directors 240,000 stock options, and just the day before had given its CEO 1.75 million stock options. After Trump’s announcement, Kodak shares shot up more than 2,757 percent. Suddenly, the board’s stock options were worth about $4 million, and the CEO’s, about $50 million.

Is this sort of insider trading against the law? You bet. The Securities and Exchange Commission is looking into the deal, now temporarily on hold.

But the SEC’s co-director of enforcement, Steven Peikin, who had been investigating several of the deals involving the White House and corporate insiders – including Kodak – has resigned, without explanation. Another in the lengthening list of independent regulators and inspectors general forced out by Trump?

This much is clear: Trump and his Republican enablers won’t provide $600 per week to tens of millions of Americans who need the money to survive the pandemic, because Trump and the GOP believe the money undermines incentives to work. 

Yet Trump has no problem letting billionaires illegally profit off the pandemic. He thinks that as long as they buoy the stock market, they’re helping the American economy.

That’s pure rubbish. The stock market is not America. The richest 1 percent of Americans own half the value of all shares of stock held by American households. The richest 10 percent owns 92 percent. For years now, stock prices have risen largely because profits have been siphoned from the wages of ordinary workers.

In the worst economic crisis since the Great Depression, stock prices are almost back to where they were before the pandemic began. Big corporations and major investors are doing fine. Billionaires are doing better than ever. But most Americans are sinking fast.

This isn’t just unfair. Much of it is illegal.

Last Thursday President-elect Donald Trump triumphantly celebrated Carrier’s decision to reverse its plan to close a furnace plant and move jobs to Mexico. Some 800 jobs will remain in Indianapolis.

“Corporate America is going to have to understand that we have to take care of our workers,” Trump told The New York Times. “The free market has been sorting it out and America’s been losing,” Vice President-elect Michael Pence added, as Trump interjected, “Every time, every time.”

So what’s the Trump alternative to the free market? Bribe giant corporations to keep jobs in America. 

Carrier’s move to Mexico would have saved the company $65 million a year in wages. Trump promised bigger benefits. The state of Indiana will throw in $7 million, but that’s just the start. 

Carrier’s parent company, United Technology, has military contracts that just last year generated $6.8 billion of its $57 billion in revenue – creating a yuge Trump card that makes $65 million look like peanuts. If Trump comes through with the military buildup he’s promising, United Technologies could reap a bonanza. You can bet that figured into the deal.  

In addition, United Technologies has more than $6 billion parked abroad where tax rates are low. It will make a bundle if Trump follows through with a plan to allow global corporations to bring that money home and pay a rock-bottom tax rate.

In other words, Trump will get corporate America to take care of “our workers” by bribing them with government contracts, tax cuts, and relief from regulations. The art of the deal is to Increase corporate profits, and assume that corporations will reciprocate with good American jobs. 

It’s “trickle-down” economics dressed in populist garb.

But it won’t work. As long Wall Street continues to push corporations to maximize shareholder returns, American workers will continue to lose good-paying jobs to foreign workers or to homegrown robots. 

Payrolls are the biggest single cost on most companies’ balance sheets, so cutting jobs and wages will continue to be the easiest way to boost profits and share prices.

If Donald Trump were serious about reviving good jobs in America, he’d give workers more bargaining power by strengthening trade unions, upgrading lifelong education and training, and simultaneously making it harder for Wall Street to demand that companies shed workers. 

This was the way the American economy functioned from the end of World War II through the early 1980s, when jobs and paychecks rose in tandem with corporate profits. Large corporations weren’t just responsible to their shareholders; they were also responsible to their workers. 

They treated workers as assets to be developed – retraining them with higher skills as the companies moved to higher value-added production, or for new jobs as the companies expanded – and resorting to layoffs only as a last resort.  

But starting in the 1980s, workers became costs to be cut. Corporate raiders mounted hostile takeovers – using high-yield junk bonds, leveraged buyouts, and proxy fights to gain control of companies – and then squeezed payrolls to get higher profits. They busted unions, outsourced jobs abroad, and installed automated equipment. 

American manufacturing employment peaked in 1979 at nearly 20 million jobs. Since then, about 8 million of those jobs have been lost to cheaper foreign labor or to automation.

Trump won’t change these economic fundamentals. How do I know? Because his cabinet choices for key economic posts were among the ring leaders in the changes I’m talking about. 

Steven Mnuckin, his Treasury pick, is a former Goldman Sachs partner who made billions over the past decades buying up companies and slashing payrolls. Wilbur L. Ross Jr., Trump’s pick for Commerce Secretary, made his billions using bankruptcy to protect wealthy owners while leaving workers and communities holding the bag. (Example in point: the collapse of Trump’s casino empire.)

These men exemplify the financialization of the American economy that’s focused only on high profits and rising share prices, and shafted American workers. 

Trickle-down economics dressed in populist garb is still trickle-down economics.

Donald Trump poses as a working-class populist, but about his new economic plan would be a gusher for the wealthy. And almost nothing will trickle down to anyone else.

Not incidentally, his plan provides a huge windfall for the Trump family. If Trump is worth as much as he says, his heirs would get a tax break of $4 billion to $7 billion.

Moreover, he’d let global corporations pay just a 10 percent tax rate on untaxed offshore profits – another mammoth gift to big shareholders.

Consider: Apple, Pfizer, Microsoft and other global American corporations hold $2.4 trillion in earnings abroad. They owe some $700 billion in taxes on these earnings. Trump’s 10 percent tax rate would raise only about $150 billion. It wouldn’t even generate new investment in America. A tax amnesty was tried in 2004 and it was a dud.

Trump says his tax cuts would cost $4.4 trillion over 10 years. He claims most of it would be paid for by economic growth.

We’ve been here before.

Both Ronald Reagan and George W. Bush tried supply-side “trickle-down” economics. We should have learned two lessons.

First, nothing trickles down. The giant tax cuts on the wealthy enacted by Reagan in the 1980s and Bush in the 2000s enriched those at the top – but the wages of the bottom 60 percent went nowhere. 

Second, such tax cuts produce giant budget deficits. Under Reagan and George H.W. Bush, the federal budget deficit exploded. It took Bill Clinton’s administration (of which I was proud to have been a member) to get the budget back in some semblance of balance.

Then, under George W. Bush, what happened? The deficit exploded again.  

Trump would do all this on a far grander scale. He’s also proposing a vast expansion of the military, including 90,000 new soldiers for the Army and nearly 75 new ships for the Navy. The tab: an estimated $90 billion a year in additional spending.

This would mean big bucks for military contractors. But it’s hard to see how economic benefits trickle down to anyone else.

Perhaps Trump is banking on an indirect fiscal stimulus – the kind of “military Keynesianism” Ronald Reagan employed to fuel growth in the 1980s. But as we learned then, this sort of growth doesn’t trickle down, either.

Trump also pledges a gigantic infrastructure building program to “build the next generation of roads, bridges, railways, tunnels, sea ports, and airports.”

Hillary Clinton has proposed spending $275 billion on infrastructure over five years.

The Donald is thinking much bigger. “Her number is a fraction of what we’re talking about,” says Trump. “We need much more money to rebuild our infrastructure. I would say at least double her numbers, and you’re going to really need a lot more than that.”

Okay, so let’s call this $500 billion over five years.

Trump doesn’t stop there. A “foundation” of his economic plan, he says, is to renegotiate Nafta, bring trade cases against China, and “replace the present policy of globalism – which has moved so many jobs and so much wealth out of our country –with a new policy of Americanism.”

Who would benefit from a retreat from globalism? Maybe giant American corporations that don’t export from the U.S. because they already make things abroad for sale in foreign markets. But not average Americans, who’d have to pay more for just about everything.

Choking off trade won’t result in more good jobs in America. Trump says his trade policy will bring back manufacturing to the United States. But today’s factories are automated. Even in China, numerical-controlled machine tools and robots are replacing humans.

Oh, and Trump also wants to scrap many environmental, health, and safety regulations. He says this will further stimulate growth.

It’s another form of trickle-down nonsense. Even if we could get more growth by scrapping such regulations, growth isn’t an end in itself. The goal is a higher standard of living for most Americans.

If our air and water are unhealthy, if we’re subject to more floods and draughts (especially lower-income Americans who can’t afford to protect themselves and their homes from the devastation), if our workplaces and our food are unsafe, what’s the consequence? Our standard of living drops.

Trickle-down economics has proven itself a cruel hoax. It’s cruel because it rewards people at the top who least need it and hurts those below who are in greatest need. It’s a hoax because nothing trickles down.

Trump’s “yuge” trickle-down economics would be an even bigger bamboozle.