Everyone seeks a situation, where we proceed, with the best possible economy, which addresses needs, goals and priorities! There are numerous ideas, and theories, about the best way to proceed, and which philosophy and/ or approach, to use and follow. We often attempt to use rhetoric, and promises, rather than focusing on what might, best serve, the needs, and best interests, of our citizens, and nation, as a whole! We have seen many philosophies, and this article, will examine, one of these, often, referred to, as trickle – down economics! In the early 1980’s, President Ronald Reagan, introduced and implemented, this approach and philosophy, and while, many adored this man, he left office, and future generations, in a degree of economic distress, created by, and caused by, the resulting deficits, created by this approach. Advocates of this approach, often state, when businesses have greater profits, they will ply these funds, back into, hiring more people, and higher salaries, for their employees. This article is inspired by current events, and the renewed interest and support, of trickle – down economics. President Trump, and the Republican – dominated Congress, are promoting a version of tax reform, which focuses on this approach. Let’s review and consider, therefore, 5 potential flaws.
1. Historic: Historically, we have never witnessed, long – term, benefits (for the majority), because of this approach! A relatively recent attempt, often referred to, as, Reaganomics, has led to an ever – widening difference, between the middle, and upper class, with the wealthiest, benefiting, and others, seeing their wages, increase, at less than the inflation rate!
2. Little correlation between higher corporate profits, and rising employment, and/ or salaries: Why should one believe, corporations, which focus on their profits, etc, would, necessarily, use greater profits (which resulted from paying lower taxes), into paying higher salaries, and/ or hiring more people? Isn’t there, at least, as much chance, this would end up, creating higher profits, larger pay to executives, and greater dividends?
3. Estate tax repeal: The exclamation for eliminating the estate tax, being used, is based on the issue of fairness, without considering the loss of revenues. In the American tax system, which uses a graduated tax basis, the estate tax, aligns with, the concept, the wealthiest pay, more in taxes! Understand, only those with personal estates over $5 million and/ or, for couples, with estates over $11 million, pay any estate taxes, and, this represents, only, approximately, 0.2% of the population. If this form of taxation is repealed and eliminated, how will we replace the revenues?
4. Deficits: When politicians only consider the impacts and ramifications, of continuous deficits, when it’s convenient, to their focus and frame – of – mind, there are potential, longer – term, negative ramifications! While it’s true the government prints the U.S. monies, it doesn’t mean, ever – increasing deficits are either wise, and/ or beneficial. Beware, when politicians, explain – away the risks and ramifications, by claiming there will be larger growth to the economy, and, thus, an increase in revenues. For example, if politicians justify this policy, by stating the growth rate will be, 50% or more, larger than the historic one, it might be, little, more – than – empty promises and rhetoric!
5. Who benefits: When you look at any proposal, always ask, Who benefits? Historically, trickle – down economics, disproportionately benefits the wealthiest!
There is no perfect system, for taxes. However, we must be careful, because, trickle – down approaches, might make a change, but, not necessarily, for the better!