When I was a first year economics student in college, one of the first things we learned about was the difference between Trickle-up (Keynesian) and Trickle-down (aka supply side) Economics. The economy is, in general, susceptible to booms and busts (expansions and recessions), but is supply-side economics the economic system that promotes the best outcome?
After the Reaganomics and Clintonomics eras in the 80s and 90s, neoliberalism became one of the most favored among economic ideas, but whether or not tax rates should be higher or lower continues to be a subject debated among government leaders who choose to adopt the neoliberal model. Graphs depicting the GDP growth rate of the economy as well as the unemployment rate show that the relationship between the GDP growth rate and the rate of unemployment in the U.S. have an inverse relationship (if the nation’s GDP growth rate increases, the unemployment rate decreases). In other words, if the economy is growing, more people will have jobs. BUT what these figures don’t show is how policies for trickle-down economics contribute to these trends and whether these policies help the middle class. These economic indicators of GDP, GDP growth rates, and rates of unemployment are often used in favor of the arguments for trickle-down economic policies, but these economic trends are deceptive indicators when they are used in the argument for the middle class. What we should be looking at are the differences in income and wages after changes in tax cuts (one of the cornerstones of trickle-down economics) which show us that wages don’t go up and incomes remain the same.
The fact is that the intuition of trickle-down is incorrect. Tax cuts increase wealth inequality because most of the growth in GDP during these tax cut years go almost entirely to the country’s highest earners (aka the top 0.1 percent). Not to mention the fact that the financial gains of individuals in this small “top earning” bracket are steadily increasing despite tax increases in recent years. This means that the top earners earn top dollars regardless of tax cuts. What tax cuts do is allow for these earners to make money more speedily but these gains are not “trickling down” to the middle class.
Investing directly into the middle class is the best way of helping the middle class. How do we do this? We need to invest more in education. Every child needs access to free early childhood education (aka Pre-kindergarten). Children who have access to this early education demonstrate higher abilities than children who start school in Kindergarten; the way things are now, inequality begins at ages 3 and 4. Then, there’s the issue of the quality of public education. If we can’t train children and teenagers to compete against those who have access to private school, how will we ever expect the middle class to grow? By revolutionizing the way we do public education, we can improve the solvency of the middle class. This means government investment into education, which requires appropriating tax dollars into this sector. Tax cuts won’t help us build better public schools, since we’ll have less tax dollars to appropriate to education. If we don’t improve public education, the chances of children born into middle class families of staying in the middle class decrease because their chances of actually competing against children and teenagers whose parents can afford private school dwindles.
The economy will grow regardless of tax cuts, unemployment will decrease regardless of tax cuts; the only thing tax cuts do is allow for the top earners to pocket more money at a faster rate. The ratio of CEO to employee salaries demonstrates this inherent inequality; employee wages have remained relatively the same while CEO salaries have continued to skyrocket (this happens regardless of tax cuts). Trickle-down technically does work (by making earning more expedient for the top 1 percent), just not for the middle class.