Does trickle-down really work?

 

Clueless - Calamity Liz Truss

How low can Liz Truss stoop? She's scalping welfare to fund tax cuts for the rich and tells us that cutting taxes for the wealthy, is good for people on low incomes, because it "trickles down" to the rest of us.

The basic level of benefits is now £77 per week, for a single person - only 13% of average pay, the lowest level on record. Nevertheless, Truss has refused to confirm if state benefits like Universal Credit, will be uprated in line with inflation.

Since Kamikwasi Kwarteng's mini-budget just over a week ago, we've seen the markets in turmoil. The pound has fallen to an all-time low against the dollar. Citigroup is forecasting a 15% house price crash and mortgages are going through the roof, if you can now manage to get a mortgage. Britain has got high inflation, high interest rates, an unsustainable budget deficit, and could now be facing a full-blown currency crisis. The Bank of England have just had to step in to stop a run on pension funds that put people's pension schemes at risk.

Lizzie Truss, says: "lower taxes lead to economic growth, there's no doubt in my mind about that." Yet, a study of 16 developed countries by the London School of Economics (LSE), showed that over the past 50 years, the impact of tax cuts on growth across all these countries, was, "statistically indistinguishable from zero " If trickle-down economics did have any credence then you would expect to have seen evidence for this in the U.S. which spent forty years experimenting with it.

When tax rates go down, does growth go up, and vice versa? U.S. data from 1947 to to 2015, shows this isn't true. A study by the Rand Corporation showed that trickle-down policies redistribute income from working people to the wealthy leading to 'trickle-up'. In the U.S., trickle-down policies, redistributed about $50 million dollars in wage growth from the bottom 90% of earners to the top 1%.

The U.S. President, Joe Biden, says he's sick and tired of trickle-down economics, which has never worked. He told America, "We're building an economy from the bottom up and the middle out." In this economic model, it's people in the broad middle of the income distribution who are seen as generating the economic growth, who do the bulk of the work, saving, consuming, and innovating. It emphasizes the need to invest in working people, in education, healthcare, worker training, transport, elderly care, and affordable housing.

From the 1980s onwards, both Ronald Reagan and Margaret Thatcher, pursued pro-rich policies. It was dubbed the 'Conservative Revolution'. Since then, what we have seen, in developed countries like the U.S. and Britain, is greater inequality in terms of wealth and income. Curiously, the period when capitalist economies grew fastest in history, 1945 to 1973, the so-called "Golden Age of Capitalism", was a period of high taxes and a lot of regulation.