The Party’s Over for Trickle-Down: It’s Time for Smarter Tax Policy

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By Eric Harris Bernstein |

Imagine you’re at a party with a broken record playing. The same song plays over and over as the guests grow tired and unhappy. Many propose changing it—not so long ago, the music was much better—but there is a problem:

One small group of revelers love the record and, to keep their anthem playing, have formed a barricade around the jukebox to prevent a switch. They have grown belligerent with enthusiasm, breaking glasses, tables, and chairs with no regard for the miserable majority of partygoers.

“Keep it going!” they chant. “We’re having fun,” they call to the wilting room. “You can too—you just need to get in the spirit!” And, unable to beat them, some unenthused bystanders join the revelers in a half-hearted attempt to end the suffering (after all, what else is there?). But it’s a fool’s errand; the record just isn’t made for the masses, so the slog continues.

Such is the state of the American economy outlined in the Roosevelt Institute’s new tax primer: The American people are the partygoers, conservative politicians and their wealthy supporters are the reckless revelers, and the record is Trickle-Down, originally recorded by Ronald Reagan.

And it is clear why some people love it so much: Under trickle-down, the economy more than doubled, while the post-tax incomes of the top 1 percent tripled. Unfortunately for those of us stuck listening (at least 99 percent of the population), the results have been decidedly mediocre: The median male worker earned less in 2014 than he did when Reagan took office, and the pre-tax cash wages and salaries for the second and third quintiles (the 20th–40th and 40th–60th percentiles) dropped by 10 and 5 percent, respectively. Even the relatively rich aren’t having that much fun: wages and salaries of the 81st–90th percentile grew by 27 percent—not nothing, but a far cry from what the richest of the rich are getting. To the extent this scenario can even be called a party, I think we can all agree it is a really, really bad one.

But if this latest lineup of prominent revelers—Rubio, Cruz, Trump, and the rest—have taught us anything, it is that the party can get much, much worse.

Ted Cruz not only plans to play the record again, he wants to turn the volume up. Of a nearly $12 trillion 10-year personal income tax cut, Cruz would give half to the top 1 percent (just over $400,000 per individual), including 22 percent to the top 0.1 percent (just under $2 million per individual). For those of you keeping score, that leaves a little under 18 percent for the rest of us (four-fifths of the population) to split up among ourselves. But don’t get jealous, because the middle quintile’s rates will go down too (by a whopping 2 percent, or $1,783 per person)!

Like Cruz, Rubio and Trump also want to turn up the volume on trickle-down, but not quite as much: Under their proposals, the top 1 percent keep a mere 70 and 67 percent of their respective multitrillion-dollar cuts.

But that’s all beside the point because, as trickle-down doctrine tells us, once our jukebox revelers have all this extra money, they’re going to spend it on businesses and investments that will boost the economy like we’ve never seen, and really get this party rocking. Never mind an army of experts who tell us that tax rates do not significantly impact growth in either direction. Never mind still more experts who tell us that tax cuts for the wealthy are especially unhelpful. Never mind the fact that, since trickle-down went mainstream, myopic corporations have gone from investing 40 cents of every dollar to just 10 cents, while they pass more and more profits to wealthy shareholders. And—perhaps most importantly—never mind 40 years of lived experience in which trickle-down has completely failed to deliver the promised gains.

Go home, conservatives, you’re drunk.

But that’s not completely fair: Republicans are not solely to blame. Capital gains rates dropped again under Clinton as well as Bush. It turns out the idea of blaming our economic woes on something everyone would prefer to abolish is pretty appealing for those in office, regardless of party affiliation. Unfortunately, we need taxes to pay for the little things, like roads, schools, and the military, that make us a country.

Finally, perhaps the most frustrating part of the continued obsession with tax cuts and trickle-down economics is that proponents want to repeat not only mistakes that we’ve already made but mistakes that we are still making. You see, it’s not as if the Reagan tax cuts were repealed: The top marginal income tax rate was 50 percent prior to Reagan, and the top capital gains rate was 28. Today those rates sit at 39.6 and 23.8 percent, respectively.

Their record is already playing, and even so the trickle-down revelers cry, “Play it again! Play it again!”

Call me a wet blanket, but this song just isn’t my thing. And if you’re in the bottom 99.9 like me, I bet you feel the same.

So, in what’s left of this election season, perhaps American policymakers should stop using taxes as a political rallying cry and start talking seriously about the good and bad incentives our tax code creates, our public investment needs, and the distribution of our tax burden. Maybe then we can have an economy where everyone enjoys the tune that’s playing.

Eric Harris Bernstein is a Program Manager at the Roosevelt Institute. Follow him on Twitter @erichbernstein.