Yet Another Conservative Principle Fails to Deliver Results

In recent years Republicans have been taking a beating at election time. Both the House and Senate now feature enormous disparities with Democrats ruling both Washington chambers.

For Republicans, a return path to prominence is generally equated to a return to the principles of one of America’s most popular presidents, Ronald Reagan. It is equally a path away from the recent Bush years where budget deficits began to grow significantly.

But those who espouse a return to conservative principles that were the hallmark of the Reagan era have to be extremely troubled by a new paper from Harvard’s Kennedy School of Government.

The findings: trickle-down economics simply does not work as theorized.

The Premise

The theory of monetary policy that became known as trickle down economics focused on tax cuts for the upper-income classes. Conceptually, reducing taxes for the wealthy meant more funds for that segment of society.

The wealthy would theoretically spend their additional income. That spending would increase general economic activity, that activity would generate jobs and those jobs would result in better paychecks for the less wealthy.

The process was dubbed trickle down economics because the theory involved wealth flowing from the wealthy on down to those without the same means. Instead, the new paper indicates that in both financial categories, in total wealth and net income, the wealthiest gained at the expense of the less fortunate.

Tax Rate Changes

In reporting the findings, the Wall Street Journal noted the incredible change in the top marginal tax rate since Reagan took office in 1980. At that time, the top tax rate stood at 70%.

By 1989, the rate had been reduced to 28%. Today, the top marginal rate sits at 35%.

Those numbers not only pale in comparison to that at the time Reagan took over, it must be noted that the top marginal rate stood at 94% in 1945.

Concept without Merit?

It must be noted that the paper did not argue that trickle-down economics was without merit. But the Journal quoted one of the paper’s authors, Christopher Jencks, as follows:

“It certainly didn’t deliver as much as many said” Jencks states. And as for any positive effects, Jencks offered, “the effects are really small.”

In today’s economic climate, one that sees enormous state and federal budget deficits, tax rates have to be part of the conversation. In fact, given the negligible positive impact of trickle down economics, it is easy to see why some are calling on increased taxes for upper income wage earners as part of the method for funding national healthcare.