‘Trickle-down’ theories keep bobbing back up

Updated
House Budget Committee Chairman Rep. Paul Ryan chairing a hearing on the fiscal impact of health care overhaul on Jan. 26, 2011.
House Budget Committee Chairman Rep. Paul Ryan chairing a hearing on the fiscal impact of health care overhaul on Jan. 26, 2011.
Charles Dharapak/AP Photo

Budget season is in full bloom on Capitol Hill this week. Between the House and the Senate, seven different votes will take place, but the main contenders are the plans put forth by House Republicans (House Budget Committee Chair Paul Ryan) and Senate Democrats (Senate Budget Committee Chair Patty Murray). Each budget is expected to pass its respective chamber–but then what? There’s not much common ground between the two budgets, and so the fiscal future remains uncertain.

In an ironic twist, the House Republican proposal seeks to balance the budget by taking a more unbalanced approach: cutting spending without addressing the revenue problem. This unbalanced approach is problematic for a few reasons: without compromise, there is little chance Congress will get a budget through at all, and by focusing on deficits and debt, Republicans are ignoring perhaps greatest problem of all, unemployment.

But there’s another reason the House Republican budget is problematic: it is based on an economic theory that’s been disproven over time: so-called trickle-down economics.

Economist John Maynard Keynes once said “practical men who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.” And nowhere is this truer than members of the Republican Party, who continue to shape their budgets on the age-old assumption that cutting taxes actually increases economic growth.

This assumption ignores scores of evidence that tax cuts, particularly on high-income-earners, do not spur economic growth. Last year, the Congressional Research Service published an extensive study on the efficacy of tax cuts and concluded that tax cuts are not correlated with economic growth whatsoever:

“The results of the analysis suggest that changes over the past 65 years in the top marginal tax rate and the top capital gains tax rate do not appear correlated with economic growth. The reduction in the top tax rates appears to be uncorrelated with saving, investment, and productivity growth. The top tax rates appear to have little or no relation to the size of the economic pie.”


And if this isn’t enough to disprove the stale theory, this chart, published by The New York Times last year, shows that the years that saw tax cuts experienced slower economic growth than when taxes were raised under George H.W. Bush and Bill Clinton.

On Wednesday, economist Doug Holtz-Eakin joined the NOW with Alex Wagner panel to discuss the budget battles in Washington.

'Trickle-down' theories keep bobbing back up

Updated