Do tax cuts stimulate the economy? - Jonathan Smith

Dig into trickle-down economics, which claims that tax cuts for corporations and the wealthy stimulate the economy and improve people's lives.

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In 1981, the US economy was struggling: unemployment rates were climbing and inflation had peaked at an all-time high. To combat these issues, President Reagan introduced a number of economic policies, including tax cuts for large corporations and high-income earners. But did these policies actually stimulate economic growth or improve circumstances for Americans? Jonathan Smith investigates.

Lesson by Jonathan Smith, directed by Gavin Edwards, Movult.

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[dimasrahardja]

My Grandfather taught economics, and I'll always remember him saying "Money is like manure. It makes thing grow when you spread it around, but if you keep it in a big pile it only stinks and attracts flies."

[foxymetroid]

In some countries, "trickle-down economics" is called "horse-and-sparrow economics". The idea is that when "grains" (money) is fed to "horses" (the wealthy), the "sparrows" (the poor) have to wait until the "horses" poo it out.

[Seiferboi]

Trickle down economics has been a failure since it became a thing about 40 years ago. The economic divide between the classes are much more severe compared to the 1970s and early 80s.

[totalme]

"You can't set a bar to a person's richness.
But there definitely should be a limit to how poor a person can be."

~ Manish Sisodia, Education Minister, Delhi

[DoctorX]

I feel like cutting taxes at the BOTTOM would help the most people. Losing 30% to income tax at minimum wage hurts. But even 70% if you’re making billions won’t result in an empty stomach

[MorePower]

Reaganomics also resulted in a lot of deregulation. In my opinion, the modern day issue of corporations being powerful enough to do whatever they want is a result of those policies.

[basstt]

Literally the only possible way this could work is if you reverse it. If you give tax breaks to the poor and middle class, (who are also the majority percent of consumers) then they have more money to spend and therefore put into the economy. The rich would still be making money since people would probably buy and invest more from them. The only thing that would be different is that companies wouldn't be able to cut corners since people might focus more on quality products rather than what's just the cheapest, which is actually a good thing as it'll probably lower practices that are bad for the environment or workers. It really should be trickle up economics.

[leonardtan]

I have a joke about trickle-down economics but 99% of you won’t get it…

[amruthasrinivasan]

As a government, it makes exactly zero sense to cut taxes for the extreme wealthy rather than the poor/working/middle classes; the extremely wealthy are the biggest source of taxes by raw amounts, so it only makes logical sense to take more as a percentage from them (from the pov of a body that needs funding). No matter how much the government tries to scrape dry the working class, it won't net much funding for government activities because they simply don't make as much.
Moreover, the poor, working, middle, and even professional/upper middle classes spend much more of their incomes than the wealthy, and contribute more of their money back into the economy, where it will inevitably 'trickle up' to those at the top anyway. Cutting taxes on the poor helps everyone at the higher levels, cutting taxes on the wealthy has little real-life effect on anyone (including said wealthy). When the economic costs of engendering poor(er) quality of life for the major fraction of the population are factored in, the idea becomes even more irrational, especially if the government is truly concerned with cutting costs as it (falsely) claims.

[texanplayer]

An alternative solution to this is to heavily tax the rich if they hoard their wealth, and give them close to no taxes at all if they invest it. THIS is how trickle down should work. But nah, politicians be like "the billionaires are honest people, they will invest willingly on their own"

[johnritchie]

From the start, I always called this policy “trickle on” economics. You’ll always get a better return on tax revenue by cutting taxes on working people. They tend to spend the money locally in grocery stores, car dealers, etc.

[raeldri]

The problem is still corruption and loopholes when a multimillion company can lobby government and after a year of high revenue doesn't pay what it should because they hide it on accounting the regular people ended up paying (also they will apply for a bailout when given the opportunity)

[tatianastarcic]

People try to predict the economy not realising it is not a capitalistic market, its a command economy, central planning! my concern is, instead of having much dollar in bank that could lose value to inflation, do I save in gold to reserve and grow wealth for now, or just hang on?

[GenerationX]

Rich people will say it works for obvious reasons. Whether it works for the rest of us or not it benefits them whether it's true or not.

[joermnyc]

The Trump tax cuts gave the best example: for many companies the only “trickle” given to employees were one time bonuses. They didn’t rush out to expand their payroll, or give permanent raises. The vast majority took that money and bought back stocks… they didn’t return that money into the economy, they hoarded it like Smaug.

[PeterFraser-hprs]

Some mention of companies buying back their own shares would have been nice to explain why tax cuts to corporations are largely ineffective.

[secondlaughs]

Absolutely it works. It trickles down like a golden shower all over the peasants

[KaosArbitrium]

Trickle down economics relies upon the concept of what Andrew Carnegie called "philanthropy", essentially charity on such a large scale that singular interests can radically change the daily lives of neighborhoods, cities, or even states and countries. The issues with this theory is that it relies on all of that money amassing into a singular point in the first place, rather than diluting across a company or even the entire world market, as well as that singular interest point being interested in "dying poor", as Carnegie put it; something he himself was not interested in until he was almost dead anyways. Neither of these are reliable or even particularly likely as factors of wealth distribution or economics. Amazon isn't going to just sell off all of it's stock and empty it's bank accounts to feed trillions of actual money into the economy out of the good of it's non-existent heart, it's going to give the appearance of doing such so the good publicity makes them back more money than they spent for their existing shareholders. It's advertising, not philanthropy.

[BuildinWings]

Half of history can be summed up as "The wealthiest didn't want to share, so (fill in atrocity) happened."

[loganshearer]

Three important things to note
1. The laffer curve assumes no deductions. (Nobody knows where the peak is and this is basically why)
2. Where the top tax rate starts effects the theory making it more true the earlier the rate starts
3. As seen in Ireland (and basically every other nation but the US) cutting corporate taxes is usually way more effective than cutting income taxes