Trickle Down Myths:
Tax Cut Reminiscent of "Trickle-Down" Economics
Courtesy of the Associated Press 2001
Twenty years ago, in 1981, new President Ronald Reagan prodded Congress to pass a huge tax cut, mostly for the wealthy. One of his aides slipped and said the plan's small cut for lower brackets was a "Trojan horse" to lure Congress members into supporting it.
Reagan promised that the reduction would jump-start America's economy through the "supply-side" principle: i.e., the investor class would have more money to spend on factory and business expansions, creating jobs and causing money to " trickle down" to the working class.
Reagan said his cut would unleash "the dynamics of the free market," spurring growth, producing more federal revenue and balancing the U.S. budget by 1983.
Since tax reductions are immensely popular, Congress jumped on the bandwagon, even though then-Vice President George Bush previously had called supply-side "voodoo economics." A feeding frenzy occurred, with cliques of Congress members giving special write-offs to their favorite industries.
The result was the biggest tax cut in U.S. history: $1.8 trillion over the next nine years. But since Reagan also demanded an expensive military buildup, the federal government soon was heading for bankruptcy. Therefore, the biggest tax increase in U.S. history, $98 billion, had to be passed to try to curb the deficits. But it wasn't enough. Deficits soared, and the national debt quadrupled.
Today, new President George W. Bush sounds like an echo of 1981 as he calls for a huge tax cut. Will his plan likewise lead to deficits and the need for follow-up increases? Writing in the Fort Worth Star-Telegram, former House Speaker Jim Wright, D-Texas, commented: "Reagan's tax increases fell mainly on consumers, low- and middle-income people. Sales and excise levies. Reagan didn't call these taxes.' They were, in his euphemistic lexicon, user fees' and revenue-enhancers.'
"Big business got the gravy, and the country got the business. The monumental errors of 1981's tax-cutting frenzy burdened our national budgets for the next 18 years.
"Now that we're finally in balance, and could pay off some of the debt we amassed, it does seem a lousy shame to start down that same temptatious road again."
Politicians rarely seem to learn lessons from history. They think only of the next election. But we hope some senators and representatives remember the 1980s disaster, and inject caution into the current Washington bandwagon.
http://www.faireconomy.org/research/TrickleDown.html
A more technical explaination: http://en.wikipedia.org/wiki/Trickle-down_effect
A simpler explaination: http://www.findarticles.com/p/articles/mi_m2548/is_2001_Jan/ai_70396224
