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The failure of GOP trickle-down economics

Trickle-down economics, instituted by Reagan and pursued by every GOP administration since, is a core Republican belief.

That’s the idea that cutting taxes for the rich will create prosperity for everyone, by “trickling down” to those lower on the economic scale. (Think workers getting jobs building mansions and yachts.)

“But a new study from the London School of Economics says 50 years of such tax cuts have only helped one group — the rich,” CBS News says (story here). This is no revelation to American workers who saw their incomes stagnate or decline while the rich got richer. It merely formalizes what everyone already knew.

Previous studies have shown the same thing. Roughly speaking, in 1970 about 60% of GDP went to labor and 40% to capital; today it’s the reverse, about 40% to labor and 60% to capital. There’s been a massive wealth shift from the middle class to the upper class.

But this study shows that’s the result of these policies everywhere. 

“The new paper, by David Hope of the London School of Economics and Julian Limberg of King’s College London, examines 18 developed countries — from Australia to the United States — over a 50-year period from 1965 to 2015. 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. 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 the analysis discovered one major change: 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.”

“Based on our research, we would argue that the economic rationale for keeping taxes on the rich low is weak,” Limberg told CBS MoneyWatch. “In fact, if we look back into history, the period with the highest taxes on the rich — the postwar period — was also a period with high economic growth and low unemployment.”

The LSE study doesn’t cover the Covid-19 pandemic, but other research indicates it exacerbated the wealth divide. “Since the pandemic began, the combined wealth of America’s 651 billionaires has jumped by more than $1 trillion, reaching $4 trillion in early December …. Meanwhile, almost 8 million Americans have fallen into poverty since the start of the pandemic … according to new data released by the University of Chicago and the University of Notre Dame,” CBS News says.

It would have been worse without the massive federal spending on pandemic relief to ordinary Americans. Republicans pushed to limit that spending by paring down stimulus checks and ending federally-enhanced unemployment benefits.

Other Republican economic policies have failed, too. Sometimes spectacularly, as in the case of the deregulation of financial institutions that led to massive abuses, and the savings & loan crisis of the 1980s, the subprime mortgage crisis of 2007, and the banking crisis of 2008.

Most Republican economic policies hurt average Americans. People who vote Republican either don’t understand this or have other political priorities.

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