econintersect.com
       
  

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.



posted on 09 December 2016

Trickle-down Economics, Trump Edition

Written by , Econoblog101

The Financial Times writes about Laffer endorsing Trump’s policy of tax cuts for the rich:

Although tax rates in most countries rose throughout the 20th century, which was by far the best century in economic history, Mr Laffer is unbowed. “When [taxes] went up [countries] did very poorly and when they went down, they did very well," he says.

laffer.curve.data.380px


The graphic above was added to this article by Econintersect. Source: Brendan Nyhan, Dartmouth College). Click on graphic for larger image.


I would like to back up the criticism of the FT at the start of the first sentence with a chart taken from FRED2:

fredgraph-6

The blue line shows you tax receipts on corporate income divided by GDP. The red line is real GDP growth. Now Mr Laffer claims that cutting taxes leads to higher GDP and hence more tax income, so that the tax intake of the government will not decline even though rates have been cut. Wikipedia, though not authoritative on the subject of economics, gets it reasonably right when it says:

“Generally, economists have found little support for the claim that tax cuts from current rates increase tax revenues or that most taxes are on the side of the Laffer curve where additional cuts could increase government revenue."

If Mr Laffer would have been right, then one should have expected that with lower marginal tax rates from the 1980s onwards, when Reagan cut them being advised by Laffer, the tax intake would not go down (much) since higher GDP growth would lead to higher tax intake. However, the figure shows that the blue line falls and stays down. The (red) economic growth rates also do not go up to reach the levels of the 1950s-1970s. Remember that the US was not destroyed after WWII, like so many other countries, so no claim can be made that economic growth is more difficult to achieve after the post-war boom had fizzled out.

Laffer’s trickle-down economics did not do well empirically. Whether a cut in taxes stimulates the economy is a different question, and also any changes in tax rates might be overcompensated by changes in government spending taking place simultaneously. This, I believe, was part of the bait-and-switch under Ronald Reagan (tax cuts for the rich, but huge increase in government spending on defence) and will be part of the Trump policy, too. Nothing new here.

>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical Opinion Post Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted. You can also comment using Facebook directly using he comment block below.




Econintersect Opinion


search_box

Print this page or create a PDF file of this page
Print Friendly and PDF


The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.


Take a look at what is going on inside of Econintersect.com
Main Home
Analysis Blog
Was Marx Right?
Angst in America, Part 5: The Crisis We Can’t Muddle Through
News Blog
Apr 25, 2017 08:01 GMT What Trump's Next 100 Days Will Look Like
How Did Small Businesses Do In 2016?
Costs Of Building A 355-Ship US Navy
The Roots Of Rising Treasury Yields
How Will College Grads Do In 2017 In Their Job Search
Recall This Bond Trader Chart? Here's What Happened
Infographic Of The Day: The Sad State Of America's Infrastructure In One Infographic
Early Headlines: High Worker Taxes, US Has Temp Funding, Net Neutrality Going?, Kurds Supported Erdogan, US To Crack Down On Iran, Russia C. Bank Easing, India Heat, H1B Scam, And More
Wiping Out Jobs Growth With Robotics
This Fantastic Idea For A Circular Runway Is Sadly Going Nowhere
Research Check: Are Aussie Women Ageing Up To 20 Years Faster Than US Women?
UFO Sightings Are At Record Heights
What We Read Today 28 April 2017
Investing Blog
The Last Time
Investing.com Weekly Wrap-Up 28 April 2017
Opinion Blog
New 'Gaullism' Rises In France
Blockchain: A Technology Whose Time Has Come
Precious Metals Blog
A New Age For Gold
Live Markets
28Apr2017 Market Close: Wall Street Closed Mostly Down On News The U.S. Economy Grew At Its Weakest Pace In Three Years, WTI Crude Settles In The Low 49 Handle
Amazon Books & More






.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government































 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2017 Econintersect LLC - all rights reserved