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Author Topic:   Trickle Down Economics - Does It Work?
Percy
Member
Posts: 22392
From: New Hampshire
Joined: 12-23-2000
Member Rating: 5.2


Message 296 of 404 (660362)
04-24-2012 9:28 PM
Reply to: Message 294 by hooah212002
04-24-2012 9:08 PM


Re: There was a rising tide. But it didn't lift all boats.
Hi Hooah,
Sorry, I was drawing the same distinction between "trickle down" versus "trickle down economics" that I was drawing with Straggler. Maybe I didn't make the distinction clear in my replies to you.
"Trickle down," as in money flowing from the rich to the rest of the economy, obviously happens because the rich spend money.
"Trickle down economics," as in cutting top marginal tax rates to increase the amount of "trickle down" in the economy, does not obviously happen. There is a great deal of debate about it.
--Percy

This message is a reply to:
 Message 294 by hooah212002, posted 04-24-2012 9:08 PM hooah212002 has replied

Replies to this message:
 Message 298 by hooah212002, posted 04-24-2012 11:36 PM Percy has replied
 Message 305 by RAZD, posted 04-25-2012 8:34 AM Percy has seen this message but not replied

  
Percy
Member
Posts: 22392
From: New Hampshire
Joined: 12-23-2000
Member Rating: 5.2


Message 297 of 404 (660364)
04-24-2012 9:49 PM
Reply to: Message 289 by crashfrog
04-24-2012 8:45 PM


Re: Correcting Misapprehensions about the Rich
crashfrog writes:
I asked you before, and I understand if it got lost in the shuffle - what counts as a "benefit"? When we say the economy "improves", what does that mean? Just from an ethical perspective we have to understand that a benefit that is not broadly distributed is really no benefit at all, and really isn't a policy aim.
What I said to Straggler at one point was that it seemed like he wanted to include the distribution of benefit as part of the criteria, and I said that sounded fine to me. I thought we were going to work toward some common ground regarding the criteria for deciding whether trickle down economics works, but somehow it got dropped.
Ask yourself where the increasing income of the rich came from after the Reagan tax cuts as shown on Straggler's graph:
The diversion of broad increases in productivity by the American workforce from their rightful earners to themselves. The graph makes that plainly clear.
I don't believe a graph showing productivity has been presented, so here's one:
Nothing remarkable happened to productivity after the Reagan tax cuts. Care to guess again where the money came from?
This growth is simply too large in magnitude to merely be the result of moving money out of tax dodges because the coast is clear,...
Not just tax dodges, but also a greater motivation to invest because of the greater value of each dollar earned.
...and the institution of the Alternative Minimum Tax makes that highly unlikely in any case.
The maximum AMT during the 1980's was 21%. Care to guess again?
The increase in income among the top 5% incomes represents a real increase in their wealth, not just a greater exposure of it. Wealth actually has moved from the middle income quintiles up to the top.
But we've seen the money didn't come from productivity gains, and it didn't come from AMT, so would you care to try again? Where did this money come from?
I'm saying you can't ground an economy on just moving money around in leaky buckets, and that's not how wealth is created. That's economics 101. Businesses are supported by spending, not by investment.
If businesses funded growth solely from their revenue streams our economy would be far more anemic. Economically it would resemble countries that disallow lending like Afghanistan and Iran. Investment is an essential funding component for business growth.
--Percy
Edited by Percy, : Clarify.
Edited by Percy, : Typo.

This message is a reply to:
 Message 289 by crashfrog, posted 04-24-2012 8:45 PM crashfrog has replied

Replies to this message:
 Message 315 by crashfrog, posted 04-25-2012 1:28 PM Percy has replied

  
Percy
Member
Posts: 22392
From: New Hampshire
Joined: 12-23-2000
Member Rating: 5.2


Message 306 of 404 (660393)
04-25-2012 8:47 AM
Reply to: Message 298 by hooah212002
04-24-2012 11:36 PM


Re: There was a rising tide. But it didn't lift all boats.
hooah212002 writes:
In a discussion about trickle down economic policy, why would you bring in a term that does nothing but confuse?
Because, just as Rrhain does in the very next message and just as you do at the end of this message, some here deny that any such thing as money tricking down from the rich to the rest of the economy even happens. I'm happy to use a less confusing term if someone can suggest one.
Now that you've cleared up your terms, I'd like to point out the ridiculousness of the concept. Your idea that money does trickle down at all insinuates that the only money in an economy comes from the rich.
Replying to you in Message 291 I said, "We know trickle down happens (and as I said before, trickle up and trickle sideways) because that is the nature of an economy." And in the very next message to Rahvin I said, "As I just said again to Hooah, we know trickle down happens because that is the nature of an economy. Everyone spends money, the money trickles everywhere in all directions, everyone benefits." I was stating a simple fact that seems to be forgotten in some of the discussion here, that money flows in all directions in an economy, including down.
'Cuz it sure is fuck isn't money that is trickling down.
Then where does money spent by the rich go? When a rich person builds a mansion, do other rich people do the foundation, the framing, the drywall, and so on? Or is it people of average income?
Crash and RAZD I think make the more valid point, noting that in the aggregate the rich contribute less to the economy in terms of spending than the rest of the population.
--Percy

This message is a reply to:
 Message 298 by hooah212002, posted 04-24-2012 11:36 PM hooah212002 has replied

Replies to this message:
 Message 309 by hooah212002, posted 04-25-2012 9:26 AM Percy has seen this message but not replied
 Message 381 by Rrhain, posted 04-27-2012 9:50 PM Percy has seen this message but not replied

  
Percy
Member
Posts: 22392
From: New Hampshire
Joined: 12-23-2000
Member Rating: 5.2


Message 307 of 404 (660395)
04-25-2012 9:18 AM
Reply to: Message 299 by Rrhain
04-25-2012 12:27 AM


Rrhain writes:
quote:
spending by the rich contributes to the economy far out of proportion to their numbers.
No, it doesn't. That's another myth.
It's mathematically impossible that it not be true. If we go by Crash's number that the rich spend 60% as much as the middle three quintiles, then since the number of rich is far less than 60% of the number of people in the middle three quintiles it can't help but confirm that spending by the rich is far out of proportion to their numbers.
There's only so much money a single person can spend. And what they spend it on doesn't contribute much to the economy.
Spending is a critical contributor to any economy. It is essential to keeping money circulating in an economy. I can't imagine why anyone would deny this. It is basic economics.
quote:
Invested money is a significant contributor to economic activity.
But it doesn't contribute to the economy. That's why the derivatives market...
Sorry, poor choice of words. I didn't mean to imply that investments are added to GDP. Crash was arguing that money put in the hands of your average person gets spent, but put in the hands of a rich person it gets invested and is in effect wasted. He seems to believe that investment is not a critical component of any modern working economy. So I stated the simple truth that invested money *is* essential.
quote:
After the 2008 financial collapse the rich (and many others) changed their investment strategies from growth to capital preservation.
No, they didn't. Because Glass-Steagall hasn't been re-enacted, the derivatives market is back on.
I'm not sure what point you're trying to make, but all I was trying to say was that investors became very risk averse after the 2008 financial collapse.
quote:
The unavailability of investment funds acts as a restraint on economic growth
But that's just it. There isn't any "unavailability." The banks are sitting on piles of cash. They're refusing to lend it out.
Because the current economic climate encourages risk averse behavior, though less so than a couple years ago.
--Percy

This message is a reply to:
 Message 299 by Rrhain, posted 04-25-2012 12:27 AM Rrhain has not replied

  
Percy
Member
Posts: 22392
From: New Hampshire
Joined: 12-23-2000
Member Rating: 5.2


Message 308 of 404 (660397)
04-25-2012 9:25 AM
Reply to: Message 300 by Rrhain
04-25-2012 12:36 AM


Rrhain writes:
You're missing something: The Reagan tax cuts spurred a recession...
Could you try making that argument again with actual data:
--Percy

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 Message 300 by Rrhain, posted 04-25-2012 12:36 AM Rrhain has not replied

  
Percy
Member
Posts: 22392
From: New Hampshire
Joined: 12-23-2000
Member Rating: 5.2


Message 310 of 404 (660399)
04-25-2012 9:41 AM
Reply to: Message 276 by dronestar
04-24-2012 10:33 AM


Re: There was a rising tide. But it didn't lift all boats.
dronester writes:
Thus, I think using the word "misstep" is, at the least, not very accurate. I should think "Grand Theft" a more accurate term.
Okay, choose what term you like, but it doesn't hurt to understand what actually happened. Mortgage backed securities were an innovation of the financial markets that permitted non-banks (also referred to as shadow banks) like Goldman-Sachs and Lehman Brothers to acquire huge inventories of mortgages without the corresponding reserves normally required of real banks. Congress and regulatory agencies did not keep up with the innovations, but they definitely should have, and there were lobbyists arguing against regulation. If you want to accuse anyone of Grand Theft then the culprits would be regulatory agencies, Congress, lobbyists, and most of all, the companies that employed them.
When the values of those securities dropped those companies had insufficient reserves, and their precarious financial situation made other financial institutions unwilling to loan them money. They foundered, the financial system tottered, trillions were lost, the government had to step in to keep the financial markets that are essential for any functional economy going.
--Percy

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 Message 276 by dronestar, posted 04-24-2012 10:33 AM dronestar has replied

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Percy
Member
Posts: 22392
From: New Hampshire
Joined: 12-23-2000
Member Rating: 5.2


Message 319 of 404 (660432)
04-25-2012 3:15 PM
Reply to: Message 318 by New Cat's Eye
04-25-2012 2:51 PM


Catholic Scientist writes:
Overall, your argument doesn't really go against the prinicples of Trickle Down Economics. Your more arguing against the unfairness of the behavior of certain portions of the rich who were engaging in what should be criminal activity.
Pretty much sums it up, though I'd add that our elected officials are complicit. I don't know why everyone is straining so hard to blame trickle-down economics.
--Percy

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 Message 318 by New Cat's Eye, posted 04-25-2012 2:51 PM New Cat's Eye has replied

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Percy
Member
Posts: 22392
From: New Hampshire
Joined: 12-23-2000
Member Rating: 5.2


Message 322 of 404 (660460)
04-26-2012 7:33 AM
Reply to: Message 315 by crashfrog
04-25-2012 1:28 PM


Re: Correcting Misapprehensions about the Rich
crashfrog writes:
Nothing remarkable happened to productivity after the Reagan tax cuts.
I never said that anything happened to productivity except broad increases, which your graph shows.
In the same way that some people are tone deaf and can't tell when a pitch is rising or falling, you appear to be slope deaf and can't fell when a line is rising or falling. Look again at the line for productivity growth during the Reagan years:
It's flat.
So I ask you again: where did the money come from?
--Percy

This message is a reply to:
 Message 315 by crashfrog, posted 04-25-2012 1:28 PM crashfrog has replied

Replies to this message:
 Message 325 by crashfrog, posted 04-26-2012 8:37 AM Percy has seen this message but not replied
 Message 336 by xongsmith, posted 04-26-2012 12:44 PM Percy has replied

  
Percy
Member
Posts: 22392
From: New Hampshire
Joined: 12-23-2000
Member Rating: 5.2


Message 323 of 404 (660464)
04-26-2012 7:56 AM
Reply to: Message 277 by Straggler
04-24-2012 12:53 PM


Re: There was a rising tide. But it didn't lift all boats.
Straggler writes:
The benefit of what?
The benefit of money moving around in the economy.
Productivity per person has increased by about a 100% yet for almost all in society incomes have risen only a small fraction of that (sub 20% on average)
Unless you think the wealthy are almost exclusively responsible for this increased productivity how n Earth can you conclude that any trickle down has happened?
Again, it's impossible for trickle down to not happen. If one rich person spends one dollar, trickle down happened. I guess we're stuck with the term "trickle down", but the reality is that money flows in all directions in an economy: up, down and sideways.
As to whether trickle down economics works, that's a different and much more complex question, plus you have to define what you mean by works. Obviously the cuts in top marginal tax rates from 70% down to 30% in the early 1980s worked by increasing the value of risking money through investment, and by increasing the motivation to increase earnings by taxing away less of each incremental dollar.
But while trickle down economics was an appropriate justification for implementing tax cuts to bring us out of the economic stagflation we were experiencing in the late 1970s and early 1980s, it is not an appropriate tool for today's economic environment. Would cutting the taxes of the rich work today? No, of course not, the rich already do not pay their fair share of taxes.
Percy writes:
Obviously trickle-down happens, but how much does it have to happen before you'd define it as working?
Are you assuming that ALL of the increased productivity is due to the wealthiest and that anybody else's increases in income are the result of trickle down?
That's what it look like.......
The portion you quoted says nothing even remotely like that, so I don't know why you would think this. I haven't made any statements anywhere about where I think productivity gains originate from.
Let me repeat the question: Obviously trickle-down happens, but how much does it have to happen before you'd define trickle-down economics as working?
All I'm asking for is a simple metric.
--Percy

This message is a reply to:
 Message 277 by Straggler, posted 04-24-2012 12:53 PM Straggler has replied

Replies to this message:
 Message 324 by Straggler, posted 04-26-2012 8:29 AM Percy has replied
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Percy
Member
Posts: 22392
From: New Hampshire
Joined: 12-23-2000
Member Rating: 5.2


Message 333 of 404 (660498)
04-26-2012 12:00 PM
Reply to: Message 280 by Dr Jack
04-24-2012 1:48 PM


Re: There was a rising tide. But it didn't lift all boats.
Mr Jack writes:
Yet many countries successfully tax the rich to much higher levels than the US, and nearly every developed nation is less unequal than the US (my own country scores badly here, but not as badly as yours).
I'm not familiar with the British tax system, but it's the effective tax rate that counts, not the rates in the tax tables. Earlier in this thread we used presidential candidate Mitt Romney's income as an example. Last year I believe he paid around 15% on $20 million income. Our top marginal tax rate is 35%. He paid only 15% because he is able to funnel income from his investment company through tax loopholes that magically transforms it into long term capital gains, which are taxed at the lower 15%. The justification for the loophole is the acceptance by investors of the risks normally associated with long term investments, but in reality the way investments qualifying for this loophole are normally managed eliminates most risk.
So I can see that your capital gains rates can be as high as 56.25%, and your income tax rates can be as high as 60%, and your VAT rates can be as high as 20%, and insurance tax rates as high as 12%, but how much do the rich actually end up paying? I'm not trying to imply anything, I'm just asking if you know. Here in this country such information is hard to come by. Romney as a presidential candidate found it politically expedient to make last year's tax return public, but very few of the rich ever do.
But while I do not know the answer, I'm sure my suspicions are obvious. I suspect the rich in Great Britain are as successful at avoiding taxes as they are here.
Anyway, the rational for keeping tax rates low is that the higher the tax rate the less the motivation to take risks or exert effort to earn money. If you're in the 10% tax bracket then you get to keep 90% of every dollar you earn, but if you're in the 90% tax bracket of the 1950s then how much effort would you be willing to exert or risk to endure if you only get to keep a dime of every dollar? This is the lesson of the Laffer curve.
The idea that the rich are untouched and untouchable is rubbish.
I don't understand why so many in this thread are into hyperbole, or why when they echo back what they think they heard it's also in terms hyperbole that didn't appear in the original.
The claim is not that the rich are "untouched and untouchable." The claim is that the evidence suggests that attempting to increase the amount the rich pay in taxes is fraught with peril because their wealth gives them great influence over those responsible for tax legislation.
--Percy

This message is a reply to:
 Message 280 by Dr Jack, posted 04-24-2012 1:48 PM Dr Jack has replied

Replies to this message:
 Message 334 by Rahvin, posted 04-26-2012 12:24 PM Percy has replied
 Message 337 by Straggler, posted 04-26-2012 1:03 PM Percy has replied
 Message 339 by Dr Jack, posted 04-26-2012 4:33 PM Percy has seen this message but not replied

  
Percy
Member
Posts: 22392
From: New Hampshire
Joined: 12-23-2000
Member Rating: 5.2


Message 341 of 404 (660561)
04-27-2012 4:30 AM
Reply to: Message 324 by Straggler
04-26-2012 8:29 AM


Re: Productivity Gains Vs Productivity Contributions
Straggler writes:
If increased national productivity ends up in the hands of the wealthiest disproportionately to their contribution to that increased national wealth, and such that the wealth of the nation is increasingly concentrated at the top, then what exactly is it that has trickled down?
It is money that has trickled down. And up and sideways and in all other directions.
We may have different ideas about the origins of productivity. While I suppose the source of productivity increases could be workers just working increasingly harder, that is certainly unsustainable for any prolonged period. Productivity increases mean getting more done with less effort. An example might be increasing automation, such as an auto company like GM might make on its production lines, or that supermarkets might make in their checkout and inventory processes, or that computer makers might make with just-in-time inventory and manufacturing processes. I'm afraid the argument that the rich are stealing the productivity gains contributed by the rest of us doesn't hold water.
--Percy

This message is a reply to:
 Message 324 by Straggler, posted 04-26-2012 8:29 AM Straggler has replied

Replies to this message:
 Message 347 by Straggler, posted 04-27-2012 8:03 AM Percy has replied

  
Percy
Member
Posts: 22392
From: New Hampshire
Joined: 12-23-2000
Member Rating: 5.2


Message 342 of 404 (660562)
04-27-2012 5:03 AM
Reply to: Message 338 by crashfrog
04-26-2012 4:24 PM


Re: Flat?
crashfrog writes:
Not even close to flat. What am I missing, here?
You're missing quite a bit, actually. The focus should be on the very early years of the Reagan administration when the tax cuts went into effect, which would be 1981. Productivity doesn't begin taking off until 1983, which you conveniently obscured with your red line that extends well into the flat period of the early years of the Reagan administration (this is the stagflation period that began during the Carter administration). Here's another graph showing productivity gains where the x-axis is easier to read:
But top 5% income began rising in 1981, coincident with the Reagan tax cuts:
If the increasing income of the rich derived from increasing productivity, how did the increase begin before productivity began rising again? And since productivity has been generally increasing since statistics began, why did the rich wait until the Reagan tax cuts to begin rolling productivity gains into their income? The data just doesn't support your interpretation.
It isn't that productivity isn't part of the mix. It most certainly is, along with a host of other factors. But the most likely explanation for why top 5% income began rising in the early 1980s is the Reagan tax cuts that cut the top marginal rates from 70% down to 50%, stimulating the economy by encouraging investment, which increases income, and moving money from unproductive shelter activity into categories more easily recognizable as income.
--Percy

This message is a reply to:
 Message 338 by crashfrog, posted 04-26-2012 4:24 PM crashfrog has replied

Replies to this message:
 Message 346 by crashfrog, posted 04-27-2012 7:46 AM Percy has replied

  
Percy
Member
Posts: 22392
From: New Hampshire
Joined: 12-23-2000
Member Rating: 5.2


Message 343 of 404 (660563)
04-27-2012 5:29 AM
Reply to: Message 334 by Rahvin
04-26-2012 12:24 PM


Re: There was a rising tide. But it didn't lift all boats.
Rahvin writes:
Because 10% of a million dollars is still $100,000, which is still a lot of money, more by far than I make in an entire year.
I get to keep about 75% (as I recall, I'd have to look up my tax return to be precise) of my ~$65,000 annually (just state/federal taxes), so I get to keep around $48,000.
So if I could invest a million dollars, I'd still get to keep about double what I take home right now.
In short, "Yes, please."
In that last sentence I think you mean "earn a million dollars," not "invest a million dollars." If that's right then I understand what you're trying to say, but this is not an example of marginal earnings.
A high marginal tax rate, translated into your wage bracket, would be if you earned $48,000 after taxes but are now in the 90% tax bracket. You're now presented with the opportunity to work on a special project that will pay you $10,000 for 100 hours work. Since you're in the 90% tax bracket your net will be $1000 for 100 hours work, or $10/hour. Are you still saying, "Yes, please?"
We agree that the rich should pay more in taxes, and I know progressive tax rates seem like a fair way to accomplish this, but the reality is that the rich shoot approaches like this full of holes. When the highest marginal tax rate was 90% there were extremely few of the wealthy who actually had to turn to the 90% table in the tax forms. Here's a brief excerpt from a blog article titled The 90% Tax Rate Myth:
Almost Classical writes:
When there was a 94% top rate in 1944-45, there were so many deductions and exclusions that the taxable income was not comparable to someone's entire income. First, the top rate started at $200,000, which today is equal to $2,413,059.90 so the maximum EMTR would apply only to incomes of $2.5 million. But, that's still taxable income, not earned income.
In 1944, you could deduct business meals, all business travel, all forms of interest payments, and much more. You could even deduct spousal travel expenses on a business trip! (Why travel alone?) Companies could also "loan" or "provide" almost anything to an employee, from an apartment to standard benefits. It was possible to shelter tens of thousands of dollars from taxable income. Three-martini lunches and expense accounts were important realities, skewing tax calculations.
As a result of deductions and exclusions, even the theoretical maximum Real Rate of taxation at 60% in 1944 overstates taxation dramatically. The reality? On earned income, the richest U.S. taxpayers paid close to 40 percent of their earned incomes in taxes in 1944. We simply didn't count much of the compensation as taxable income.
I believe the solution is to flatten tax rates (not completely flat, just flatter), simplify the tax code, and focus on eliminating loopholes. When the rates are flatter and tax laws are simpler then loopholes and attempts to insert them in legislation will not be easy to hide.
--Percy

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Percy
Member
Posts: 22392
From: New Hampshire
Joined: 12-23-2000
Member Rating: 5.2


Message 344 of 404 (660564)
04-27-2012 5:32 AM
Reply to: Message 336 by xongsmith
04-26-2012 12:44 PM


Re: Correcting My Misapprehensions about the plot
It's the early Reagan years when the tax cuts happened and when top 5% income began rising that are relevant.
--Percy

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 Message 336 by xongsmith, posted 04-26-2012 12:44 PM xongsmith has not replied

  
Percy
Member
Posts: 22392
From: New Hampshire
Joined: 12-23-2000
Member Rating: 5.2


Message 345 of 404 (660565)
04-27-2012 5:43 AM
Reply to: Message 337 by Straggler
04-26-2012 1:03 PM


Re: There was a rising tide. But it didn't lift all boats.
Hi Straggler,
Much that is "fraught with peril" is not effectively impossible, if I've captured your meaning. Fraught with peril" means fraught with peril rather than impossible, which actually means something else.
Again, I don't understand the hyperbole or the tendency toward absolute statements. I would think you'd want to avoid both in a discussion about economics.
--Percy

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 Message 337 by Straggler, posted 04-26-2012 1:03 PM Straggler has not replied

  
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