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Study Shows Trickle Down Economics Doesn’t Work

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A new study from the London School of Economics says that 50 years of trickle down economics doesn’t work. What’s more, tax cuts for the wealthy only helped one group: themselves. 

RELATED: Trump Strong On The Economy

Conservative lawmakers and economists have long supported trickle down economics. The basic premise of the idea is that reducing taxes for the wealthy will spur them to create additional investments. Which then would mean more jobs and would benefit more people via a trickle-down effect. The study said it didn’t.

50 years, 18 countries research

The new study, a joint effort from David Hope of the London School of Economics and Julian Limberg of King’s College London, examined 18 developed countries, including the United States, over 50 years from 1965 until 2015. It compared countries that passed tax cuts versus countries that didn’t. 

The study found out that per capita gross domestic product and unemployment rates remained nearly identical after five years in both types of countries. While the economic landscapes remained the same, income levels of the rich grew much faster in countries that cut tax rates. Instead of the expected trickle-down effect, it only made the wealthy keep more of their riches. Consequently, it resulted in a bigger income gap between the wealthy and the middle class. 

Weak Economic Rationale

Limberg, who is also a lecturer on public policy at King’s College, said that the theory of trickle down economics doesn’t work. “Based on our research, we would argue that the economic rationale for keeping taxes on the rich low is weak,” he said “In fact, if we look back into history, the period with the highest taxes on the rich — the postwar period — was also a period with high economic growth and low unemployment.”

As the study data only covered until 2015, it does not include data on the effects of President Donald Trump’s administration. The United States enacted a series of taxes for the rich and companies in 2017. Meanwhile, the middle class only received a moderate reduction. Limberg said that if the study includes that data, the results will likely remain the same.  

Increased Inequality

The current coronavirus pandemic helped widen the inequities gap. Most lower-paid workers in retails, service and hospitality jobs lost their jobs – either temporarily or permanently. The continued shutdown of some industries contributed to America’s highest post-war unemployment rates. 

Meanwhile, white-collar workers managed to dodge the worst parts. Many office workers held on to their jobs via remote setup. Stock market players made a killing this year as stocks rallied every time talks of recovery started. Most low and middle-class workers do not have investments. 80% of stocks are in the hands of the richest 10%.  

Reaganomics 

Trickle down economics is a key idea of Reaganomics, the basis for economic programs by the Reagan administration during the 1980s. The term “trickle-down” itself started as a joke by humorist Will Rogers. It’s often used to decry policies that favor the wealthy but making it seem beneficial for the average worker. Meanwhile, Democrats are not in favor of the idea. With the incoming Biden administration, expect less and less support for the policy.  

Earlier studies also point out that the trickle down economy doesn’t work. A Tax Justice Network paper in 2012 said that the wealth of the super-rich will not trickle down and improve the economy. Instead, the money will find its way to tax havens, maybe even negatively impacting the tax bases.  Similarly, a 2015 paper by International Monetary Fund researchers arrived at the same conclusion. It said “If the income share of the top 20 percent (the rich) increases, then GDP growth actually declines over the medium term, suggesting that the benefits do not trickle down. In contrast, an increase in the income share of the bottom 20 percent (the poor) is associated with higher GDP growth.”

Watch the Yang Speaks video where former presidential candidate Andrew Yang explains why trickle-down economics doesn’t work:

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Do you agree with the concept of trickle-down economics? Do you support the idea that reducing tax obligations for the rich will trickle down to society? Let us know what you think about this theory by sharing your comments below!

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6 Comments

6 Comments

  • Annon says:

    Higher taxes for rich makes the taxes trickle down. This is especially true if you include business owners. This article did not include that detail. Businesses will move to lower tax countries and/or pass the taxes to customers. Who are customers usually not the rich. What is the better alternative economy. Socialism which is where the Biden team plans to send the USA to.

  • Kent says:

    the only study showing that capitalism does not work is from communist sources. You can pretend that some clown that ran for president on the democrap ticket is really talking workable solutions, but that is more crap that cost many their ability to guide their own destiny and far more lost their lives. Keep living the ignorance from university hores and you will understand what it is to be homeless in the land of plenty.. only the gestapo will have money ..

  • Kent says:

    that is the trash bin that rooosha, chinkeeville, cooooba and the fools in Great Britain live in.. oh and by the way while you are bloviating about socialism take a closer look and what ceasar chavez brought down on Venezuela.. the poor children in this country are being scammed by the scum in universities and fools from Europe ..

  • Edouard d'Orange says:

    This study makes no sense. If allowed to keep more of their money (that’s right, it’s THEIR money, not the government’s), so-called rich people will put their money in tax havens instead of investing is the study’s and failed candidate Wang’s conclusion?! Wrong. The opposite happens. When governments try to take more money, governments get less tax revenue because that’s when rich people shield their assets from taxation by putting them into tax-free investments or by sending their money overseas. But, when so-called rich people see healthy economic conditions, and when they have more disposable income, that is when they spend and invest in businesses. Perverse economics. Taxing more increases economic activity? Government re-distribution increases GDP?NO. All the government confiscation does is decrease economic activity. If it was true that high taxation and government spending and government control of money, then why don’t we increase taxes, spending and control to 100%, sort of like the Soviet Union, eastern bloc countries, Cuba and Venezuela did. Should work, right? Ha. False argument that high taxes in the past helped economic growth. This condition was not a cause of economic growth but a condition that existed but that didn’t hinder growth because: 1)almost nobody paid the high rate, and 2)the economy was going to bounce back after being suppressed for so long and because of the baby boom. These authors and Wang are looking for any excuse to trash Reaganomics or any hint of supply-side economics, so, of course, they’re going to find it, no matter what. They start out totally biased, not as independent researchers.

  • Huapakechi says:

    Higher taxes are passed down to the consumer as a cost of doing business. When government gets hold of money it only benefits government.

  • Phil Gesch says:

    Didn’t see anything about entertainers. Trickle down is the only way that they can justify their no tangible product existence. America’s economy is practically based on entertainment.

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