The Trickle-down Tax Code Failed. In 2025, We Have an Opportunity to Think Bigger.

It’s Tax Day, which is a good moment for reflection on our nation’s deeply distorted tax code, and the 40 years of policymaking that brought us here. The systematic rewriting of the tax code has been a central pillar of the neoliberal project since the Reagan era, slashing taxes for high-income individuals and corporations and resulting in more inequality and less revenue for public investment. Reversing these 40 years of dismantling will be essential to the project of building a progressive, post-neoliberal economy and state.

The trickle-down economics theory embraced by the Reagan administration and many of its successors claimed the benefits of these tax cuts would spur growth and create a rising tide that would lift all boats. In the immortal words of Chilli Heeler, “Neither of those things are happening.”

Instead of high growth and improved economic outcomes shared broadly, for much of the last four decades we have seen a slow—often stagnant—economy and consistently rising inequality. Study after study has shown that growing inequality is bad for economic growth, and often means the very wealthy are hoarding resources instead of investing them in productive endeavors. My colleague Elizabeth Pancotti has a deeper dive into the data out today, but here are some quick highlights:

• In the 2000s, despite many new, “pro-growth” tax cuts, GDP growth averaged only 2.5 percent per year. Compare that to the 1950s, when the top marginal income tax rate was consistently above 90 percent and the corporate tax rate was 52 percent—annual GDP growth averaged more than 4 percent, and employment grew by 7.1 percent.
• By 1988, millionaires had received an average tax cut of $226,000 via Reagan’s tax cuts, while taxpayers earning only $40,000 in income received an average tax cut of $603.
• Wage increases have also failed to trickle down. CEOs and other corporate executives have captured 81 percent of the wage gains that flowed from the corporate tax cuts in the 2017 Tax Cuts and Jobs Act (TCJA).
• Trickle-down economics has significantly worsened racial inequality. The Black-white wage gap shrunk substantially between 1950 and 1980, but since 1980 that trend has reversed, and those gains have been erased.

Meanwhile, US tax revenue as a percent of GDP has hovered consistently below what most OECD countries bring in. This creates real and political limits on our government’s ability to take on big challenges. As Roosevelt President and CEO Felicia Wong wrote recently in the New York Times, “As one of the wealthy nations with the lowest tax rates, the United States has put off investing in our families and children. This deferred maintenance is costly: Our child care, health care, family leave and higher education systems are, as a result, among the most expensive and least accessible in the world.”

Luckily, the next few years offer an opportunity to start to undo the damage of the last 40 years. Many of the most recent neoliberal tax cuts—provisions of the Trump-era TCJA—expire in 2025. And this expiration is an opportunity for us to not just roll back damaging provisions passed in 2017, but rethink the role of the tax code more broadly.

We need a tax code that helps our economy grow equitably and can fund big investments in infrastructure and people—from solar arrays to childcare. That tax code can’t look like what we had in 2016, nor should it look like what we had in 1979. We should be working toward a new tax code that proactively aims to rebuild the middle class, rebalance power, and confront racial and economic inequality.