How so-called ‘trickle-down theory’, and criticisms of it, are invented and wrongly used to justify tax rate rises and attack market-oriented thinking – some unusual facts and empirical results.

People fall for seductive rhetoric so easily. Grabbing the moralism of a partial story without thinking through the whole story, or its unintended, counter-productive effects.

Here’s an example: Attacking “trickle-down” economics is common (not that there is indeed such a theory – it’s an invention to then enable attack). The rich get richer, the poor get poorer. The money stays at the top. Tax cuts only help the rich. We don’t need tax cuts. Even tax rises are justified, moral, needed. Right? Wrong. The empirical evidence is far from it. Sure a bad tax cut can backfire, but a good one? Here’s how left-wing sentiment obscures facts and hurts the poor.

Firstly, everyone knows the growing inequality of income across countries. Except it’s not true. Internationally (not domestically) it has fallen – see the UN Report of 2020. And poverty globally has dropped massively in this century with (because of) a relatively free-market system. That’s a lot to throw away, to start with.

To be a socialist economist, first you have to deal with Prof. Thomas Sowell’s evidenced rebuttals and his keen empirical data. He’s old (93 yrs) and has seen and written about it all, globally…

On tax cuts…

In an essay of only 20 pages (link below), we see many examples of where and how tax *rate* cuts led to tax *receipt* increases – and hence more money for the poor. It includes four examples of US Presidential tax rate cuts that worked to increase not only tax receipt rises, but even tax % increases by the rich – and much more.

Summary video – under 8 minutes:

Sowell also shows another way in which the economic theory of reducing marginal tax rates works in the opposite direction to what many expect. Workers are always paid first, and profits flow upward later, if at all. Why? Because the money available from a tax cut (assuming a business environment has incentives) is invested (eg a factory is built) and the workers get paid for a significant period whether or not the investment is eventually successful.

Sure, bad tax cuts can backfire, but judicious ones can be very beneficial for those we should care about most – the poor – as tax receipts increase.

This kind of evidence is not palatable for those who dislike people having ‘wealth’, or allowing ‘inequality’, and they often therefore bury the evidence, providing poor (or worse, pseudo-moral poor) arguments in the other direction. But facts remain, and is it better to make the poor you shout for, worse off, in the name of making them better off?

Trickle Down” Theory and “Tax Cuts for the Rich | Thomas Sowell | 9780817916152

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