“Supply-siders believe — correctly or not — that lower taxes lifts all boats together,” he says. “Growth is not a flow of resources that cascade from rich to non-rich. In fact, many supply-siders argue that lower taxes benefit workers more than capital owners through international capital flows. Whether this argument is right or wrong is a legitimate issue. But describing this view as ‘trickle-down economics’ would be akin to supply-siders describing their detractors as communists, a label that would certainly be rejected as well.”
However, he says, there’s little evidence to suggest that this would be the case for the current GOP proposal. “Most recent estimates suggest that the majority of corporate income taxes fall on business owners and shareholders, with only a minority falling on wages. And the fiscal crisis generated by Kansas’s recent tax cuts suggests today’s tax rates aren’t high enough for such cuts to be revenue-generating.”
“How much growth will we get from this plan? It depends on final details and things we truly don’t know much about.”–Joao Gomes
“Under the current tax proposal, the trickle-down economics becomes: ‘we’ll give a big cut in the corporate tax rate with the hope that those workers will benefit from the resulting new investment.’ It’s not surprising that if you tax returns on investments less there will be more investments,” says Robert P. Inman, Wharton professor of finance. “The real question becomes: How big of an effect on investment will there be, and if there is new investment in capital, will it benefit workers?
“The term ‘trickle-down economics’ doesn’t really represent a cohesive economic theory.”–Benjamin Lockwood
One aspect of this debate that is under-emphasized, says Lockwood, is the potential for other types of targeted tax cuts to generate beneficial spillovers. These are benefits that could bubble up from low earners, or flow sideways from middle earners, rather than trickling down from the top.
“There is evidence that cutting taxes, or targeting spending, on specific middle-class professions, including teaching and basic research, would have quite large beneficial spillovers.”–Benjamin Lockwood
The first approach would do little to spur economic growth, they conclude. The second could boost growth dramatically. Rather than advocating a rewrite of tax code with different rates for different jobs, the authors recommend a rewards system that would raise salaries and award merit pay.
“There is no economist who doesn’t agree that if you give somebody money, it’s going to have effects elsewhere in the economy. The only issue is how do those effects play out….”–Robert Inman