The day after his State of the Union address, President Biden crowed about another 275,000 jobs added to the economy in the month of February. “Three years ago, I inherited an economy on the brink. Now, our economy is the envy of the world,” he said in a written statement. “We added 275,000 jobs last month — nearly 15 million since I took office.” He concluded, “Across the country, the American people are writing the greatest comeback story never told. The days of trickle-down are over.”
Last July, NEC Director Lael Brainard laid out the overwhelming evidence that “trickle-down” economics — defined as “cutting taxes for big businesses and those at the top” — has been a bust.
“Economic inequality increased, many communities suffered from sustained disinvestment, and earnings growth for many Americans failed to keep pace with the cost of necessities like health care, housing, and education,” she said. “Investments in infrastructure and vital industries stagnated.”
This isn’t new evidence, either. A 2020 paper by David Hope of the London School of Economics and Julian Limberg of King’s College London examined “18 developed countries — from Australia to the United States — over a 50-year period from 1965 to 2015,” CBS News reported. “The study compared countries that passed tax cuts in a specific year, such as the U.S. in 1982 when President Ronald Reagan slashed taxes on the wealthy, with those that didn’t, and then examined their economic outcomes.” It turns out that “per capita gross domestic product and unemployment rates were nearly identical after five years in countries that slashed taxes on the rich and in those that didn’t, the study found.”
But there was one significant difference: “The incomes of the rich grew much faster in countries where tax rates were lowered. Instead of trickling down to the middle class, tax cuts for the rich may not accomplish much more than help the rich keep more of their riches and exacerbate income inequality, the research indicates.” Oops.
Well, what about the huge tax cuts passed by MAGA Republicans in 2017? Were those any different? “Mr. Trump’s tax cuts have lifted the fortunes of the ultra-rich,” the report found. “For the first time in a century, the 400 richest American families paid lower taxes in 2018 than people in the middle class, the economists found.”
But economic growth made up for this handout, right?! Not so fast. Wages for average Americans did not keep up with the cost of living. Worse, “Even before the pandemic, income inequality had reached its highest point in 50 years, according to Census data,” as CBS News reported. And, before Biden came into office, income inequality worsened as the pandemic hurt the less-well-off more severely than it did the rich.
A 2022 update by Hope and Limberg reiterated, “Our findings on the effects of growth and unemployment provide evidence against supply side theories that suggest lower taxes on the rich will induce labor supply responses from high-income individuals (more hours of work, more effort, etc.) that boost economic activity.” Instead, they confirmed there is “strong evidence that cutting taxes on the rich increases income inequality but has no effect on growth or unemployment.”
Given that experience, Biden entered office determined to deploy targeted investments (e.g., infrastructure, chip manufacturing), tailored tax increases on rich individuals and corporations that had been paying no taxes, cost controls on items such as prescription drug prices, and expansion of the Affordable Care Act. Robust immigration and energy production further boosted growth. Biden also canceled billions in student loan debt, freeing up consumer spending. The result has been a record recovery from the pandemic and real wage growth adjusted for inflation.
The chair of the Council of Economic Advisers, Jared Bernstein, told me after the State of the Union: “There’s a solid, empirical body of research confirming this. Tax cuts for the rich just make them richer, exacerbating both the deficit and economic inequality.”
One type of tax credit has worked spectacularly well. “The 2021 expansion of the Child Tax Credit (CTC) led to a historic reduction in poverty in the United States, particularly for children. Research showed that child poverty fell immediately and substantially,” the Brookings Institution reported last year. “On an annual basis, according to the U.S. Census Bureau, child poverty fell to its lowest level on record in 2021: 5.2%.”
Biden now proposes a tax increase for billionaires. “There are 1,000 billionaires in America,” he told the country during the State of the Union. “You know what the average federal tax rate for these billionaires is? 8.2 percent!” He argued, “No billionaire should pay a lower tax rate than a teacher, a sanitation worker, a nurse! That’s why I’ve proposed a minimum tax of 25 percent for billionaires. Just 25 percent.”
There is no evidence that doing this would impair the economic recovery Biden has presided over. It, however, would help pare down the deficit (something Republicans used to pretend to care about).
Sold as a prosperity booster, trickle-down tax cuts for the very rich do not increase prosperity, growth or employment for the average American. This sop to the rich does increase the deficit and income disparity. By contrast, restoring the child tax credit and enacting a billionaire’s tax would continue to narrow the gulf between the very rich and everyone else.
Trickle-down economics is a scam. Renewing tax cuts for the rich that are due to expire at the end of 2025 would do about as much for you as a degree from Trump University.
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