Introduction

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A political cartoon on the Trickle-Down Theory.



The Trickle-Down Theory is the idea that giving tax breaks or economic benefits to businesses and the wealthy will benefit the lower classes. The name is credited to Will Rogers, who said "money was all appropriated for the top in hopes that it would trickle down to the needy" during the Great Depression. The Trickle-Down Theory is related to Reaganomics and laissez-faire in today's society.


Context


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Thomas Sowell.

Economist Thomas Sowell has said the the true path of money in a private company's economy is the opposite of the Trickle-Down Theory. Money first goes to employeers, suppliers and contractors. If the business if profitable, money returns to the owner. This rarely happened, taking high taxes and other expenses into account. He stated that as big of a presence that the Trickle-Down Theory has in the economy, no economist has ever advocated for it.

Criticisms

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A political cartoon criticizing the Trickle-Down Theory.

Economist John Kenneth Gailbraith pointed out that the Trickle-Down Theory had already been etested in Americain the 1890s with the "horse and sparrow theory":

"Mr. David Stockman has said that supply-side economics was merely a cover for the trickle-down approach to economic policy—what an older and less elegant generation called the horse-and-sparrow theory: 'If you feed the horse enough oats, some will pass through to the road for the sparrows.'"

He stated that the horse and sparrow theory carried part of the blame for the Panic of 1837.

Parts of Keynesian economics, along with related theories, think tax cuts for the people of lesser income would stimulate the economy for than those for the wealthy would. These types of theories usually support broad fiscal policies directed at the entire economy, not just a section of it.\

In a 2012 study by the Tax Justice Network, it was found that the Trickle-Down Theory does not improve the economy. The excess wealth is put into stock havens and has a negative effect on the economy's tax bases.

Quotes



"There are two ideas of government. There are those who believe that if you just legislate to make the well-to-do prosperous, that their prosperity will leak through on those below. The Democratic idea has been that if you legislate to make the masses prosperous their prosperity will find its way up and through every class that rests upon it." - William Jennings Bryan, Democratic Presidential candidate, in his "Cross of Gold" speech.
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William Jennings Bryan.


"Republicans [...] simply don't know how to manage the economy. They're so busy operating the trickle-down theory, giving the richest corporations the biggest break, that the whole thing goes to hell in a handbasket." - Lyndon B. Johnson after leaving office.

"Mr. President, the trickle-down theory attributed to the Republican Party has never been articulated by President Reagan and has never been articulated by President Bush and has never been advocated by either one of them. One might argue whether trickle down makes any sense or not. To attribute to people who have advocated the opposite in policies is not only inaccurate but poisons the debate on public issues." - Senator Hank Brown from the Senate floor in 1992.

Ross Perot, the Independent Presidential candidate in 1192, said the Trickle-Down Theory was "political voodoo."

Damien O'Connor, from the New Zealand Labour Party, called the Trickle-Down Theory "the rich pissing on the poor."