Initially popularized during the Reagan presidency, trickle down economics—an idea almost exclusively supported by conservatives—is the idea that if a government provides more money in the form of tax cuts for the rich, it will ultimately put more money into the economy and “trickle down” to the rest of society. Reagan and other conservative presidents such as George W. Bush utilized the trickle down approach through tax cuts. The opposite approach, “trickle up” economics, is the idea that tax breaks for middle and lower classes will support and drive the economy.
Although trickle down might appear good in theory, history shows that it is not an effective economic system. In 1993, President Bill Clinton raised taxes on top earners from 31 percent to 39.6 percent. Conservatives thought this would end in disaster, but it ultimately was very beneficial. 23 million jobs were created and the economy grew consistently for 32 quarters, which at the time was the longest expansion in history. By contrast, President George W. Bush cut income taxes substantially, lowering the top rate to 35 percent while also lowering top rates on capital gains and dividends. Following this was weak economic growth and eventually the 2008 economic collapse.
In order to compel the rich to spend the extra income, there would need to be legal incentives to spend the money on investment in the lower classes. If not, the rich end up keeping the extra money as they tend to save a greater portion of their income than spend it. However, the middle class tends to spend the money once they receive it as they have little to no extra money to spare. For that reason, giving more tax breaks and compensation to lower income levels in the form of subsidies, tax credits for small businesses, is the practical economic strategy.
Another compelling reason in favor of trickle-up: large corporations have always been very influential in American politics, and trickle up can reduce their influence, subsequently promoting small businesses instead. This will also reduce the dependence on large corporations to create jobs for lower income Americans through allowing for more money for small businesses.
Conservatives believe that tax cuts for the wealthy are the best economic decision. They “create an incentive to increase output, employment, and production,” said Arthur Laffer, a member of Reagan’s Economic Policy Board. However, those at the top do not need tax breaks as they already have nearly 70 times the net worth of the lower classes, according to Forbes. The idea that they would spend the money leading to more circulating in the economy and for the middle and lower classes is simply not true—the money will just sit in billionaires’ bank accounts. Trickle up economics could lead to reducing the inequality in America significantly by creating less dependence on large corporations, which would be a step in the right direction for America.
Proof that trickle up economics works can be found in the success of the Supplemental Nutrition Assistance Program, better known as “food stamps,” a government issued voucher to those on low income redeemable for food. When food stamps are spent, the economy and the American people all benefit. According to the Department of Agriculture, every five dollars of food stamps generates up to nine dollars in economic activity. Although people complain about the high costs, it is one of the best forms of government aid that is provided as it promotes jobs in the farm and retail sectors. Every one billion dollars of retail food demand leads to 3,300 farm jobs, according to the Department of Agriculture. Food stamps also allow those with lower incomes to spend money on necessary payments such as rent and water instead of constantly spending it on food.
In order to create positive change in America and help reduce the gap between the top one percent and the lower classes, it is necessary to invest in the middle class and small businesses and to rely less on large corporations. Trickle-up economics will allow for this to happen, in ways that trickle-down economics cannot.
