Since the 1980s, Republicans have been enamored by the trickle down theory, the idea that wealth trickles down from the wealthy as they use money from tax cuts and higher profit margins from deregulation to build new businesses, expand existing ones, spend on luxury goods, and create job after job after job in the process.

Where we always end up on this debate is on semantics.

First off, the entire idea of “trickle down economics” is not a real term. It describes a well known reality where high taxes cause a dearth of investment capital. IF that were the case in the US right now (that there was a lack of investment capital) cutting taxes would indeed increase that capital and cause wage increases and stimulus at the business startup end. This is why Mr. Obama’s stimulus package was 50% — 66% “trickle down” tax cuts. (Yes, it’s true. Democrats love to pillory the trickle down concept verbally, but then they use it themselves when the conditions warrant.)

But (and this is probably the only point Mr. Fish is 50% correct on) they won’t work today, because there is no dearth of investment capital, but thanks to the Fed holding down interest rates to unnaturally low levels, not because the broader CONCEPT is flawed.

But the three times it was tried, those jobs not only failed to materialize and wages remained stagnant for over three decades, the last time ended in the Great Recession, as risky investments spurred complex financial shell games, normalizing ever more exotic and farcical securities often underpinned by outright fraud and bad math.

I’m not sure what “three times” Mr. Fish is referring to — Mr. Bush, after all. took over a recession from Mr. Clinton, which was quickly exacerbated by 9/11, which we did recover from. Mr. Clinton cut capital gains taxes, leading to additional capital which fed the tech venture economy of the late 90’s (perhaps a bit too well) and Mr. Reagan, when it was all said and done, didn’t actually cut any taxes at all, from the standpoint of effective rates. Mr. Kennedy’s tax cuts also worked quite well.

But the most egregious contention in the above paragraph was that the cuts under Mr. Bush were somehow organically connected to the events of 2008. I would hope we do NOT repeat the experience of the Great Depression, where the political narrative (that the events of 1929 were caused by greedy speculators, completely ignoring the fact that most millionaires (including Joseph P Kennedy) and the investment banks (Goldman, JP Morgan) all exited the market in the Spring of 1929) lived on for thirty years, leading to the creation of bad public policy, before it was disproven by Milton Friedman and Anna Schwartz in A Monetary History of the United States, a seminal work for Friedman leading to his Nobel Prize.

There was no connection between Mr. Bush’s tax policy and the events of 2008. The events of 2008 were caused by real estate speculation that started at the same time as the dot-com speculation of the late 1990’s, and simply took longer for that bubble to burst because of creative financial engineering by Wall Street and the simple fact that houses are illiquid assets.

In the above chart, the red and the blue lines show the path housing prices SHOULD have followed, if they were true to their 40 year averages in terms of price appreciation; the “real” numbers (inflation adjusted) are in red, the nominal numbers in blue.

But here is what is key. The deviation from the mean price line, in both cases, started in the late 1990’s, and was clearly already underway PRIOR to Mr. Bush’s inauguration in 2001. That is the visual representation of the beginnings of the real estate asset bubble. Thus, it is scurrilous to try and pass blame to Mr. Bush on this matter.

But why doesn’t this seemingly straightforward idea work in the real world?

See above; the answer has to do with a dearth of investment capital or not. And how you’re defining the word “work”.

Everything the bill does will help the investor class and those who use limited liability companies to do business, and it pays for that help by eliminating dozens of very useful deductions for typical Americans and piling on over a trillion dollars in debt in every single expert assessment.

Uh…….that contains hyperbole. You can’t credibly argue that getting rid of deductions like the mortgage and SALT deductions, which are almost exclusively used by the upper 30% of wage earners (it’s only the upper 30% that file the long form, after all, where those deductions are taken) and that increasing the child and standard credits does anything but help the 70% at the expense of the 30%.

I would agree with the GENERAL SENTIMENT that this bill is flawed (although I am not convinced it is, overall, worse than what we currently have (which both parties would barf on if proposed today); I would prefer that it be revenue neutral and leave the upper rate as 39.6%. But characterizing it the way you have is……misleading, at best.

Sacrificing your deductions to the God of Republican Capitalism isn’t going to result in explosive job growth outside the Wall Street fan-fiction Republican think tanks pass off as policy. It all boils down to one simple fact. Companies have very different priorities than governments, and expecting them to simply do the bidding of politicians is an exercise in wishful thinking.

Ah! Yes. A paragraph that is all true. HOWEVER, let’s all remember that economists, in general, will all agree that a tax code with fewer deductions is more efficient than a tax code with a lot of them. We can quibble about this or that, but flatter is better than complicated. That’s axiomatic when it comes to tax policy.

Just imagine yourself as the CEO of a typical mid to large-size company for a moment. Unlike your counterparts …. (snip)

The rest of this is way too hypothetical, and assumes much fact which is not in evidence. Lowering corporate marginal tax rates, surprisingly, does not lower the effective tax rate that many major corporations pay. Probably the only truly bipartisan part of this bill (in that it would have bipartisan support if it were presented alone) is the lowering of the corporate tax rates to international averages, because (a) it also closes loopholes that only our multinational corporations can avail themselves of, which do NOT work in the best interest of the american worker or citizen, and (b) it puts smaller competitors to those multinationals, who pay the current full rate while the multinational is paying 3–5% effective, on a level playing field. And it’s that small-business sector which is the engine of job growth in the US.

Anyone who wants to keep the US corporate tax code as-is, or even RAISE what they pay, is not acting in the best interest of the American worker.

Data Driven Econophile. Muslim, USA born. Been “woke” 2x: 1st, when I realized the world isn’t fair; 2nd, when I realized the “woke” people are full of shit.

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store