About Supply Side Economics — I’m Still Waiting For It To Trickle Down
The definition of insanity is doing the same thing over and over again and expecting different results. That would certainly explain the Republican Party’s continued support of supply side or trickle down economics. The long time belief on the right is that if we give the wealthy and the corporations more money and power, they will create jobs that will benefit the rest of the country. Unfortunately, American economic history clearly demonstrates that this belief held by conservatives is simply wrong.
Our country’s first experiment with supply economics was during the Coolidge Administration. In 1925, the Republican controlled Congress reduced the top marginal rate from 78% to 25%. (The 78% top rate was passed to finance U.S. military operations in World War I.) The economy grew during the 1920s but all of the gains went to the top. As a matter of fact, the U.S. experienced its highest level of inequality in our history by 1928 — until the present era.
Those tax cuts and the lax regulation of big business during the Coolidge era produced big stock market and real estate bubbles. Unfortunately, both of those bubbles burst in 1929 and the outcome was the Great Depression — the most severe economic crisis in American history.
The next time the top marginal tax rate was reduced was in 1964. The Kennedy-Johnson tax cuts reduced the top rate from 90% to 70%. Conservatives like to claim that the 1964 tax cuts vindicate supply side economics but they are giving us an airbrushed version of history. The JFK-LBJ tax cuts were coupled with middle class tax cuts, an extension of unemployment benefits, an increase in the minimum wage and infrastructure investments. All of those policies directly benefited the middle class and are anathema to present day conservatives.
The country’s next encounter with trickle down economics was during the Reagan Administration. Republicans always point to the Reagan years to vindicate their belief in supply side economics. (They always omit Coolidge, Bush 43 and Sam Brownback when touting conservative economic doctrine.) The economy created millions of jobs during the Reagan Administration but middle class wages stagnated and all of the gains went to the top. Moreover, Reagan ran up the largest peacetime budget deficits in history and tripled the national debt. It all came crashing down when the economy went into recession between 1990–92.
Both George H.W. Bush and Bill Clinton raised taxes on the wealthy in an effort to clean up Reagan’s deficit mess. Conservatives predicted both times that tax increases on the wealthy would tank the economy. Instead, the economy boomed during the Clinton Administration and he left to his successor a projected $5 trillion ten year surplus.
When he took office, George W. Bush had other ideas. In both 2001 and 2003, tax cuts largely aimed at the wealthy were pushed through Congress using the budget reconciliation process. Republicans confidently predicted the Bush tax cuts would create 250,000 jobs per month and pay off the national debt by 2011.
Needless to say, things turned out very differently. The so-called Bush economic expansion was the weakest recovery since World War II and the economy went into recession in late 2007. The economy subsequently collapsed in September 2008 and was losing 800,000 jobs per month by the time Bush left office. It was the gravest economic crisis since the Great Depression.
The most recent experiment with supply side economics occurred in our neighboring state of Kansas. In 2013, Sam Brownback pushed through the Kansas legislature a big tax cut for the wealthy. The former Kansas governor fearlessly predicted an economic boom for the Sunflower State and proclaimed: “Look out, Texas. Here comes Kansas!”
Once again, the GOP predictions about a tax cut for the rich turned out to be wildly off the mark. By 2017, the Kansas economy was on the ropes and the state had a projected budget deficit of $1.1 billion. In June 2017, a coalition of moderate Republicans and Democrats reversed Brownback’s failed tax cuts over his veto.
We are now discovering again that the Republicans have learned nothing from all of their previous failures. The Trump Administration and the Republicans in Congress are beginning a big push to pass a deficit financed tax cut that would largely benefit the wealthy. The Trump tax cut plan would add $1.5 trillion to the national debt, increase taxes on millions in the middle class and give 80% of the benefits to the top 1%.
The driving force behind the latest right wing tax cut scheme is the GOP’s billionaire donor class. The likes of the Koch brothers have threatened to cease donating to GOP candidates until they get another another tax cut. As a result, GOP members of Congress are feeling an urgency to pass another deficit financed tax cut for the rich. As Senator Lindsay Graham said: “If the GOP doesn’t pass tax reform, we’re dead. It’ll be the end of Mitch McConnell as we know it.” Similarly, Ted Cruz said: “If tax reform crashes and burns, if [on] Obamacare, nothing happens, we could face a bloodbath.”
What this means is that it is both good policy and good politics to oppose the Trump tax cuts. Please call your members of Congress and tell them there shouldn’t be one penny for the top 1% and not one penny added to the national debt. This is a fight we can win because deficit financed tax cuts for the wealthy are extremely unpopular. Let’s get it done! We can do it!