For more than four decades, supply-side ideologues have promoted the myth that tax cuts for the wealthy are self-financing and the benefits eventually trickle down to everyone else, despite real-life evidence that tax cuts for the rich benefit the rich.
Not even the reality of 40 years of widening income inequality or the current economic expansion in which the benefits primarily flowed to wealthy households have stopped anti-tax proponents from peddling the erroneous idea that top-heavy tax cuts will eventually benefit ordinary working people.
As a new ITEP video shows, this supply-side thinking, also known as trickle-down economics, is a school of thought that claims tax cuts for the rich will trickle down to everyone else and supercharge the nation's economy in the process. Some adherents to this worldview use the Laffer curve or the easily manipulable "dynamic scoring" technique to claim that economic growth will be so explosive that lower tax rates would actually lead to more tax revenue.
We’ve seen this trickle-down experiment conducted in the past, and it hasn’t worked. Consider President George W. Bush’s 2001 and 2003 tax cuts. Thirty-eight percent went to the top 1 percent of Americans. But the wealth didn’t trickle down. Low job growth, increased poverty, and a growing income gap persisted throughout most of Bush’s tenure. The end of the Bush era also ushered in the worst economic recession since the Great Depression; shattered the myth of a broad, prosperous middle-class, and exposed the fact that a substantial percentage of Americans across the country are one or two paychecks from financial ruin.
Instead of taking this lesson about the majority of Americans’ livelihoods (or lack thereof) and applying it to public policies that promote shared economic prosperity, the nation’s policymakers are back at supply-side square one. Speaker Paul Ryan’s most recent budget plan doubles down on trickle-down, proposing to give a whopping 60 percent of its tax cut to the top 1 percent of earners. On the campaign trail, President Trump touted a tax cut plan that would bestow 44 percent of its benefits to the 1 percent. Either Trump or Ryan’s plan, or even a combination of the two, would transfer more of the nation’s wealth to the rich and force working people to pick up the slack in the form of cuts to vital programs and increased annual deficits. This drive to cut taxes ignores polling that reveals nearly two-thirds of voters think wealthy individuals and corporations pay too little in federal taxes, not too much.
Some state lawmakers have also favored cutting taxes for the rich over investments in broader prosperity. Supply-side-driven tax cuts are particularly dangerous for state budgets because unlike the federal government, most states can’t run deficits. As a result, state-level tax cuts tend to bring about a rapid, unavoidable reduction in vital public services.
Kansas is perhaps the most infamous recent example. Gov. Sam Brownback slashed top tax rates in 2012, but the job growth he promised didn’t materialize, and the state has faced massive budget shortfalls every fiscal year since.
North Carolina eschewed most of those lessons and followed Kansas over the proverbial supply-side cliff. The Tarheel state’s cuts began in 2013 and are set to phase in through 2020—a tactic that delays and masks, but does not eliminate, much of the budgetary consequences. Already cuts of more than $2 billion annually, or 10 percent of the general fund, have resulted in severe reductions to key services such as K-12 and higher education.
The evidence of supply-side economics’ failures is abundant. The promise of broad economic prosperity is too often broken. Instead, ordinary working people have to endure concessions that matter little to the super wealthy who enjoy the tax cuts. At the federal level, lawmakers focus on which vital programs to cut in exchange for maintaining tax cuts for the wealthy. And at the state level, residents endure underfunded schools and crumbling roads. The time for our policy makers to look out for ordinary working people and ensure our local, state, and federal governments have the resources necessary to invest in our communities is long over due.