More on Trickle-Down Economics

How the GOP sees the world

The GOP tax "reform" plan -- in quotations because yes, it's basically a tax cut (POTUS45 doesn't have the attention span to manage a major reform) -- doubles down on trickle down economics: that giving more money to rich people and corporations will drive broader benefits for everybody else.  No serious economist believes this.  Even Wall Street is skeptical of the plan; they worry about hot money inflows, appreciation of the US$, inflated asset prices, impact on consumption and housing prices, and how it eventually may trigger another recession(!!!).

New Yorker's John Cassidy summarizes the counterarguments in his article covering a Reuters panel discussion featuring several experts.  Ex-Federal Reserves board member Alan Blinder and Moody's chief economist Mark Zandi showed charts showing no correlation between GDP growth and tax rates - -  something that everybody outside the White House readily points out.  Another economist showed that tax cuts have historically gave more money to shareholders (i.e. dividends and buybacks), as opposed to making new investments or giving increased salaries to employees.  Moreover, across-the-board profitability has been high and corporate borrowing costs have been low for some time; companies that wanted to invest would likely have done so already.

The final panelist, billionaire investor Mark Cuban, makes the point from a job creator's perspective: taxes are not the primary driver of hiring, salary or capex decisions; the most important business considerations are always supply-demand dynamics and competition.  Technology is another major factor: in the past 25 years we experienced two rounds of digital revolutions: internet boom of the '90s and smartphone boom of the 2000's, which birthed new industry giants such as Google, Alibaba, and Tencent.  These days a neighborhood store owner isn't losing sleep over tax rates, she is worried Amazon is eating her lunch!  Another round of technological dislocation is at our doorstep, as autonomous vehicles, artificial intelligence/machine learning, and advanced manufacturing robotics become the norm.  These are guaranteed to create backlash and discomfort as many industries will be upended, putting many inappropriately-skilled workers out of comfy jobs.

Cuban also hits another common-sense point: if the intent is to give more money to the working class, why not cut payroll taxes, which costs the average family 15% of their hard-earned dollars (as opposed to income taxes, which not everybody pays)?

Cassidy summarizes as follows:

"... The Republican tax plan is based on false premises; it won’t give the economy much of a boost; it will raise the deficit; it will primarily benefit corporate shareholders and C.E.O.s.  And, as Cuban said, it is a distraction from the great policy question of the day, which is how to insure at least a modicum of shared prosperity in an economy being roiled by technological change, global competition, and demographic transformation. [...] If Trump wanted to help out the working stiff, why didn’t he take Cuban’s advice and call for a cut in the payroll tax? To pay for the reduction, he could also have proposed abolishing, or substantially raising, the payroll tax’s upper-income threshold, which enables someone who earns a million dollars a year to escape the tax on about seven-eighths of his income. Such a policy package could have boosted take-home pay, financed itself, and also helped to reduce income inequality."