Trickle-Down Economics and Broken Promises | Center for American Progress
For more than 30 years, conservative politicians have tried to sell Americans on the notion that giving tax cuts to the wealthy will spur economic growth and job creation, generating broad-based economic prosperity. Their marketing of this trickle-down economics has been successful: After decades of campaigning, many Americans now accept the oft-repeated assertion that lower taxes and less regulation leads to job growth. Congress followed suit, lowering tax rates sharply for the highest-income earners, while leaving tax rates relatively unchanged for other groups. When President Ronald Reagan took office in 1981, the marginal tax rate for the highest income bracket was 70 percent, but that fell to just 28 percent by the time he left office. Even after modest increases since then, the top marginal tax rate for top earners today hovers at just more than half of what it was in 1980 (see figure 1). At the same time, Congress and the courts have taken repeated steps to roll back labor and financial regulation, further contributing to the skyrocketing wealth of the top 1 percent.
Yet empirical economic data show that these misguided policies did not deliver on their promises, as our nations economy after the tax increases of 1993 significantly outperformed the periods after tax cuts in the 1980s and 2000s. Investment growth, productivity growth, employment growth, middle-class income growth, national fiscal health, and overall economic growth were weaker or declined under trickle-down policies.
Far from generating broad prosperity, these misguided policies have also led to an unprecedented level of income inequality in the United States. Conservatives have alternately denied a rise in inequality outright or insisted on its necessity for optimal growth. In 2012, for example, conservative columnist and political commentator Michael Tanner wrote that inequality may not be growing at all.
Economist Diana Furchtgott-Roth goes even further in writing about the myth of increasing income inequality, concluding that inequality has declined rather than increased. But a preponderance of economic researchand the real-world experiences of millions of Americans who witness rising inequality firsthandshow this to be untrue. The Gini index, economists well-tested measure of inequality and one the U.S. Census Bureau officially calculated, shows that the United States has seen a steady rise in income inequality since 1980 (see figure 2).