Trickle-up v. Trickle-down economics

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In last week’s closing post I discussed how trickle down economic have failed miserably and that it’s now time to use trickle up economics. First a short description of both:

Trickle-down economics: A theory that economic growth is promoted by letting businesses flourish and passing tax laws that reduce the taxes of the wealthy. The theory says that businesses and individuals will make investments that fuel economic growth and the benefits will “trickle down” to the masses.

The trickle up effect is an economic theory used to describe the flow of wealth from the poor to the affluent; it is opposite to the trickle down effect.

I won’t have the time or the space to discuss these economic theories, but I will point to how the trickle-down theory has failed the middle-class. What we have seen since the Regan years has been the trickle-down theory, where the rich were given substantial tax cuts, regulatory encouragement, and tax and trade law changes that permitted the rich to get richer while the middle class and lower economic strata saw little gain in comparison.

Here is a small sampling of the trickle-down method, which is only considering the years of the Bush tax cuts:

The base pay of employees whose income was above the Social Security wage cutoff -- now $106,800 -- increased 78 percent, or by almost $1 trillion, from 2002 to 2007. During the same period, income for workers increased just 24 percent.

The rich get richer: Income and wealth gap grows over the past decade

As you may recall, during the trickle-down parties of the Regan and Bush II, the wealthy were given the gift of lower tax rates. While all incomes were given some relief, the wealthy were given a larger percentage of the tax breaks.

Federal Tax Policies Exacerbating Income Gaps

Legislation enacted under the Bush Administration has provided taxpayers with about $1.7 trillion in tax cuts through 2008. These large tax reductions have made the distribution of after-tax income more unequal. Because high-income households received by far the largest tax cuts — not only in dollar terms but also as a percentage of income — the tax cuts have increased the concentration of after-tax income at the top of the spectrum.
Households in the bottom fifth of the income spectrum received tax cuts averaging $20, which raised their after-tax incomes by an average of 0.3 percent.Those in the middle fifth of the income spectrum received tax cuts averaging $740, which raised their after-tax incomes by an average of 2.5 percent.The top 1 percent of households received tax cuts averaging $44,200, which raised their after-tax incomes by an average of 5.4 percent.Within the top 1 percent, those with incomes exceeding $1 million received tax cuts averaging $118,000, which raised their after-tax incomes by an average of 6.0 percent.

The attached table vividly illustrates the effect of the trickle-down method on incomes (click on the below table attachment to see a larger image):

Income Gaps Hit Record Levels In 2006, New Data Show
Rich-Poor Gap Tripled Between 1979 and 2006

The trickle-up method’s time has come. Robert Reich describes Trickle-up as Obmamanomics, but that aside, his views are solid:

Obamanomics, by contrast, holds that an economy grows best from the bottom up. The president proposes to increase taxes on the highest 2% of income earners starting in 2011. Those tax increases will fund more Pell grants allowing lower-income children to attend college, better pay for teachers that show they're worth it, broader access to health care, improved infrastructure, and more basic research. These and related expenditures are designed to help Americans become more productive. You might think of it as "trickle up" economics.

The key is public investment. Reaganomics did not view any public spending as an investment in the future except when it came to spending on the military. Hence, since 1980, federal spending on education, job training, infrastructure and basic research and development (apart from defense-related R&D) have all shrunk as a proportion of GDP. And apart from a modest expansion of health insurance available to poor children, there has been no significant attempt to make health insurance broadly affordable to Americans.

Obamanomics Isn't About Big Government
The president's focus is on improving human capital

Even the Japanese, after 55 years of single party rule are looking at trickle-up economics after not seeing the fruits of their labor materialize.

Hatoyama has pledged to raise the minimum wage and discourage hiring through agencies or on temporary contracts. On climate change, he has set an ambitious target of cutting greenhouse gas emissions by 25 percent within 10 years from its 1990 levels.

The party has adopted a salvation plan based on "trickle up economics." It wants to put money in the hands of families, in hopes that they will spend it in Japan and stimulate the world's second-largest economy.

Japan's new PM faces daunting in-tray

I think it time to begin using the trickle-up method so the middle class can reap some of the rewards, instead of the wealthy and affluent gaining all the economic ground at the expense of all others.



Do you see the income gap widening in your community? How do you feel about trickle-up v. trickle-down economics?