The Irony of Progressive Attitudes toward 'Trickle-Down Economics'

I recently saw a commentary on the President’s new tax plan and, to no one’s surprise, the speaker characterized it as “trickle-down economics,” a throwback to the bad old days of the Reagan Tax Cuts. Trickle-down economics in this context is a pejorative term the left uses to describe almost any policy that reduces taxes. Such policies are alleged to be favored by conservatives in order to help the wealthy, but rationalized by false claims that everyone will benefit. Letting the dogs eat the scraps that fall from the table, so to speak.

There is tremendous irony in this charge, but notwithstanding the irony, the actual reasons for cutting tax rates have nothing to do with helping one class at the expense of another. There are many sound reasons to reduce taxes, but let’s start by at least refuting two of the primary talking points used by progressive opponents of tax cuts.

The first, and most emphatic, progressive talking point is that a tax cut equates to giving a benefit to “The Rich.”  This odd use of language is peculiar to the left and much of the media. Most ordinary Americans (by that I mean those of us not among the political or media elite) would reject such a premise. In no way should a tax cut be considered giving something away, at least according to any reasonable understanding of the English language; that would be like meeting someone on the street and telling them that you are going to give them a benefit because you don’t plan to rob them.

A second core principle of progressive thought, often unstated but implied, is that the Government will do better things with the money raised through taxes than the people who earned it in the first place. This may at first seem plausible to some, but let me cite the wisdom of two well-known experts on this subject: Milton Friedman once made the comment, “If you put the federal government in charge of the Sahara Desert, in 5 years there'd be a shortage of sand.” OK, so Milton Friedman is no advocate of progressive economics, but how about that paragon of progressive virtue, Warren Buffet? Here is an excerpt from a 2007 interview with CNBC's Becky Quick.

Becky: OK, there were a couple of emails that came in that people that said if you think the government should be able to tax more money, why don't you just give your money away to the government instead of charity.

Buffett: Well, that's a choice and it's an option that... If I had to give it to a single individual, or make some young Buffett a multi-billionaire, or give it to the government, I'd absolutely give it to the government. I think that on balance the Gates Foundation, my daughter's foundation, my two sons' foundations, will do a better job with lower administrative costs and better selection of beneficiaries than the government.

English Translation: I know how to spend my money better than the Government does.

So the true bases for the so-called trickle-down policy (i.e., reducing taxes) are that a person has a presumptive right to keep his own property, and that the economy will benefit more from the allocation of resources by private individuals than by government bureaucrats. These assumptions are widely accepted and eminently reasonable. Proponent of tax reduction should do a much better job of explaining and defending them.

So, what is the irony here? It turns out that real trickle-down economics is actually alive and well. We are currently supporting a gigantic trickle-down scheme, which the advocates of higher taxes have seemingly failed to recognize. It is none other than (wait for it) … the US tax system. The current redistributive tax system is a textbook example of actual trickle-down economics at work. It actually does transfer tremendous amounts of money to the rich and powerful government bureaucracy, based on promises that there will be major benefits to the people. Unfortunately, as most of us understand, a great many of our tax dollars are wasted, go towards maintaining the bureaucracy (but I repeat myself) or are used to pay off the various political constituencies that support the bureaucracy. Thus, a relatively small proportion of the promised benefit actually trickles down, but the rich and powerful government is always well taken care of.  I have to admit that this is where I agree with the critics about the flaws of trickle-down economics.

Of course, the polar opposite of the way government spends is how people spend their own money. As we all know, private individuals and organization spend money very judiciously. They recognize that they have limited resources so they carefully choose to spend or invest only where they expect a tangible benefit or reasonably return. Little or none of their hard-earned capital will be wasted. Instead it will flow into the economy to build new businesses, support other businesses through purchases of goods and services or will be lent out to others for similar purposes -- all of the presumed benefits of government spending minus the cost of the bureaucracy. The progressive opponents of trickle-down economics turn out to be somewhat correct after all, but unfortunately, they have identified the wrong villain.

Richard Goldfien is a managing partner with Auxilian Insurance Services in California and has spent over 25 years in finance and business management.

I recently saw a commentary on the President’s new tax plan and, to no one’s surprise, the speaker characterized it as “trickle-down economics,” a throwback to the bad old days of the Reagan Tax Cuts. Trickle-down economics in this context is a pejorative term the left uses to describe almost any policy that reduces taxes. Such policies are alleged to be favored by conservatives in order to help the wealthy, but rationalized by false claims that everyone will benefit. Letting the dogs eat the scraps that fall from the table, so to speak.

There is tremendous irony in this charge, but notwithstanding the irony, the actual reasons for cutting tax rates have nothing to do with helping one class at the expense of another. There are many sound reasons to reduce taxes, but let’s start by at least refuting two of the primary talking points used by progressive opponents of tax cuts.

The first, and most emphatic, progressive talking point is that a tax cut equates to giving a benefit to “The Rich.”  This odd use of language is peculiar to the left and much of the media. Most ordinary Americans (by that I mean those of us not among the political or media elite) would reject such a premise. In no way should a tax cut be considered giving something away, at least according to any reasonable understanding of the English language; that would be like meeting someone on the street and telling them that you are going to give them a benefit because you don’t plan to rob them.

A second core principle of progressive thought, often unstated but implied, is that the Government will do better things with the money raised through taxes than the people who earned it in the first place. This may at first seem plausible to some, but let me cite the wisdom of two well-known experts on this subject: Milton Friedman once made the comment, “If you put the federal government in charge of the Sahara Desert, in 5 years there'd be a shortage of sand.” OK, so Milton Friedman is no advocate of progressive economics, but how about that paragon of progressive virtue, Warren Buffet? Here is an excerpt from a 2007 interview with CNBC's Becky Quick.

Becky: OK, there were a couple of emails that came in that people that said if you think the government should be able to tax more money, why don't you just give your money away to the government instead of charity.

Buffett: Well, that's a choice and it's an option that... If I had to give it to a single individual, or make some young Buffett a multi-billionaire, or give it to the government, I'd absolutely give it to the government. I think that on balance the Gates Foundation, my daughter's foundation, my two sons' foundations, will do a better job with lower administrative costs and better selection of beneficiaries than the government.

English Translation: I know how to spend my money better than the Government does.

So the true bases for the so-called trickle-down policy (i.e., reducing taxes) are that a person has a presumptive right to keep his own property, and that the economy will benefit more from the allocation of resources by private individuals than by government bureaucrats. These assumptions are widely accepted and eminently reasonable. Proponent of tax reduction should do a much better job of explaining and defending them.

So, what is the irony here? It turns out that real trickle-down economics is actually alive and well. We are currently supporting a gigantic trickle-down scheme, which the advocates of higher taxes have seemingly failed to recognize. It is none other than (wait for it) … the US tax system. The current redistributive tax system is a textbook example of actual trickle-down economics at work. It actually does transfer tremendous amounts of money to the rich and powerful government bureaucracy, based on promises that there will be major benefits to the people. Unfortunately, as most of us understand, a great many of our tax dollars are wasted, go towards maintaining the bureaucracy (but I repeat myself) or are used to pay off the various political constituencies that support the bureaucracy. Thus, a relatively small proportion of the promised benefit actually trickles down, but the rich and powerful government is always well taken care of.  I have to admit that this is where I agree with the critics about the flaws of trickle-down economics.

Of course, the polar opposite of the way government spends is how people spend their own money. As we all know, private individuals and organization spend money very judiciously. They recognize that they have limited resources so they carefully choose to spend or invest only where they expect a tangible benefit or reasonably return. Little or none of their hard-earned capital will be wasted. Instead it will flow into the economy to build new businesses, support other businesses through purchases of goods and services or will be lent out to others for similar purposes -- all of the presumed benefits of government spending minus the cost of the bureaucracy. The progressive opponents of trickle-down economics turn out to be somewhat correct after all, but unfortunately, they have identified the wrong villain.

Richard Goldfien is a managing partner with Auxilian Insurance Services in California and has spent over 25 years in finance and business management.

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