Trickle down theory

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Trickle down theory is the idea - falsely attributed to conservatives - that helping rich people will indirectly help the poor.[1] People who attribute this idea to their opponents also generally refer to tax rate reductions as "tax cuts for the rich". But the trickle-down effect is (at best) an oversimplification of an idea originally championed by U.S. presidents Wilson and Kennedy, as well as economist John Maynard Keynes. These men suggested that when tax rates are too high, tax revenues suffer; so they suggested that a reduction in tax rates could increase tax revenue (see Laffer curve).

the theory that cutting taxes for the corporations and wealthy individuals will stimulate economic growth by increasing the amount of capital available to invest. Some argue that cutting taxes to the poor has a greater effect on the economy since almost all the money that they earn goes directly to buying products and services.

Many people called President Ronald Reagan a proponent of trickle down economics after he advocated cutting the capital gains tax rate, but

He did not sell this policy on the grounds that ‘there will be a trickle down effect.’ However, opponents often claimed that this miserable ‘trickle down effect’ summarised Reagan’s economic policy[1]

Actually, as economist Thomas Sowell points out,

  • there is no such thing as "trickle-down" economics. Supposedly those who believe in trickle-down economics want to give benefits to the rich, on the assumption that these benefits will trickle down to the poor.
  • no economist of the past two centuries had any such theory.[2]

References

  1. 1.0 1.1 ... if high income earners gain an increase in salary, then everyone in the economy will benefit as their increased income and wealth filter through to all sections in society. The Economics Help Blog
  2. Stupidity trickling down

See also