Historical Perspective, "Trickle-down Economics"

WASHINGTON, January 30, 2012 - "Trickle-down economics" and "the trickle-down theory" are terms used in United States politics to refer to the idea that tax breaks or other economic benefits provided by government to businesses and the wealthy will benefit poorer members of society by improving the economy as a whole. The term has been attributed to humorist Will Rogers, who said during the Great Depression that "money was all appropriated for the top in hopes that it would trickle down to the needy." The term is considered pejorative by some proponents of tax cuts.

Today, "trickle-down economics" is most closely identified with the economic policies known as Reaganomics or supply-side economics. Originally, there was a great deal of support for tax reform; there was a dual problem that loopholes and tax shelters create a bureaucracy (private sector and public sector) and that relevant taxes are thus evaded. During Ronald Reagan's presidency, the Democratic Party-controlled House, at the urging of President Reagan, cut the marginal tax rate on the highest-income tax bracket from 70% to 28%.

A major feature of these policies was the reduction of tax rates on capital gains, corporate income, and higher individual incomes, along with the reduction or elimination of various excise taxes. David Stockman, who as Reagan's budget director championed these cuts at first but then became skeptical of them, told journalist William Greider that the term "supply-side economics" was used to promote a trickle-down idea.

"It's kind of hard to sell 'trickle down,' so the supply-side formula was the only way to get a tax policy that was really 'trickle down.' Supply-side is 'trickle-down' theory."

The economist John Kenneth Galbraith noted that "trickle-down economics" had been tried before in the United States in the 1890s under the name "horse and sparrow theory." He wrote, "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.'" Galbraith claimed that the horse and sparrow theory was partly to blame for the Panic of 1896.[15] During this period, in his Cross of Gold speech, Democrat William Jennings Bryan said:

"There are those who believe that, if you will only legislate to make the well-to-do prosperous, their prosperity will leak through on those below. The Democratic idea, however, has been that if you legislate to make the masses prosperous, their prosperity will find its way up through every class which rests up on them."

Proponents of Keynesian economics and related theories often criticize tax rate cuts for the wealthy as being "trickle down," arguing tax cuts directly targeting those with less income would be more economically stimulative. Keynesians generally argue for broad fiscal policies that are direct across the entire economy, not toward one specific group.
In the 1992 presidential election, Independent candidate Ross Perot called trickle-down economics "political voodoo."

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