Trickle Down Economics
This needs to be said now, loudly and clearly, without any hesitation, equivocation or doubt: The theory of trickle down economics is a fraud that is unsupported by empirical evidence. It is a mere fig leaf designed to rationalize the redistribution of wealth from the essential workers of our society to the wealthiest. The application of this theory into public policy over the last fifty years has divided our country into two classes: the obscenely rich and everyone else, with terrible consequences for the common good.
Let’s look at the evidence.
Nationally, the longest economic recovery in our history of the country occurred in the period immediately after World War II and continued well into the sixties. It is sometimes called the “great compression” because the middle class experienced enormous growth and the extremes lessened between the wealthiest and the rest of us. This period was also characterized by a fact that the current advocates of trickle down economics choose to ignore. Marginal income tax rates on the wealthiest reached almost 90%. High taxation of the top 1% was no deterrent to economic growth and prosperity for all.
Turning to Montana, the issue arises again because the Governor has proposed cutting income taxes on our wealthiest for the ostensible purposes of stimulating our economy and job creation. His measure, Senate Bill 121, would lower the income tax rate on these folks from 6.5% to 5.9%. On average, a taxpayer earning $500,000 or more a year would have his/her tax bill to the state lowered by about $6000. The tax cut would cost the state treasury hundreds of millions of dollars. Those lost dollars would not be available to meet any of the state’s pressing needs like long term care for our elders or affordable housing.
Montana tried this experiment with tax policy before with the passage of SB 407 in 2003. This bill reduced the top marginal income tax rate from 11% to 6.9%. Several years later, the Department of Revenue studied the impact of the bill on Montana’s employment growth. Dan Dodds wrote the report in 2013 and it is available online at the Department of Revenue. Dodds concluded that the “evidence for a tax-cut-induced increase in labor demand is contradictory and at best inconclusive.”
Let me conclude with an anecdote that illustrates the point. I have a friend whose son took a semester off from college to work as a waiter in a Big Sky restaurant. During one double shift at the restaurant he took home $1400 in tips, while several patrons ordered caviar at $365 a pop. I’m happy for him but sad for what it tells us about our Montana community. A tax cut that supports the spending habits of our wealthiest and creates a larger servant class is not the kind of progress we need.
Those who advocate for trickle down economics have the burden of proving that the policy will benefit the common good. They have not done so. At best, SB 121 will serve only to support the lifestyles of the rich and famous who live in their $10 million dollar homes in Big Sky, Whitefish and the like while it robs the state treasury of the ability to respond to the needs of Montana’s common folks. It should be labeled for what it really is. Malicious bunk.