(Note: This is the script from the latest episode of a podcast I’m trying to do. It’s called Nailing It Down. You can listen to it here: https://soundcloud.com/mark-kelley-423918520/nailing-it-down-3-hardly-a-trickle)
Hello, and welcome to Nailing It Down, a podcast dedicated to reporting and analyzing current events…by tapping knowledge and expertise wherever we can find it…to get as close to the truth as possible. I’m Mark Kelley.
Before I say anything else, I want to apologize for all the numbers about to come at you.
It can’t be avoided because today’s topic is “trickle-down” economics and the federal tax cut passed and signed into law by the President late last year. I know they called it a tax reform measure, but as near as I can tell, it’s mostly a tax cut. It was introduced November second, 2017 and rammed through and signed by Mr. Trump exactly one month later….so swiftly was it accomplished that some of the modifications of the bill were hand-written in the margins of the document…not printed out for all to see…when it was voted on.
Officially, it’s called the Tax Cuts and Jobs Act. Its purpose, according to its sponsors, is to amend the Internal Revenue Code of 1986, based on tax reform advocated by congressional Republicans and the Trump administration. Major elements include reduced tax rates for businesses and individuals; a personal tax simplification that increases the standard deduction and family tax credits, but eliminates personal exemptions and makes it less beneficial to itemize deductions. It limits deductions for state and local income taxes, and property taxes…and also limits the mortgage interest deduction. It reduces the alternative minimum tax for individuals and eliminates it for corporations. In addition, it reduces the number of estates impacted by the estate tax, and it repeals the Affordable Care Act requirement that all Americans must have health insurance.
When analysts suggested that the new law was top-loaded to benefit businesses and wealthy Americans, Republicans and the Trump administration argued that it would greatly benefit middle and lower income people as business owners and the rich passed down their gains to those below them on the economic ladder. Debate over whether that was actually the case resurrected the term—trickle down economics—a derogatory label Democrats slapped on the supply-side economic proposals put forward by President Ronald Reagan and his budget director, David Stockman, back in the early 1980s.
Stockman backed away from the “supply side” scheme in 1985, admitting it 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, as in: “If you feed the horse enough oats, some will pass through to the road for the sparrows.’ The “trickle down” concept has been condemned repeatedly in the twentieth century. According to Wikipedia, a New Zealand Labour Party M-P…Damien O’Connor…called trickle-down economics “the rich pissing on the poor” in a 2011 election video. A 2012 study by the Tax Justice Network…a non-profit research group…found that the wealth of the super-rich does not trickle down to improve the economy, but tends to be amassed and sheltered in tax havens with a negative effect on the tax bases of the home economy. And yet, despite polls showing that a strong majority of Americans opposed the tax reform act of 2017 and suspected it was little more than a gift to the wealthy, the Republican controlled Congress rammed it through and the Republican President signed it into law.
And, despite international disdain for trickle-down economics, supporters continue to defend it. Case in point…a recent…March, 2018… op-ed piece in the Lancaster, Pennsylvania L-N-P newspaper by a man named Roy Minet…a former Libertarian candidate for auditor general of Pennsylvania. The headline read: “In a free market, “trickle down” economics actually works.” Mr. Minet’s column is an excellent opportunity to nail down some critical facts about the latest tax cut and the general economic condition of Americans.
Minet defines “trickle down” economics this way: In a free market economy like the United States, he says, millions of “economic entities”…individuals and businesses…engage in billions of transactions…he calls them voluntary exchanges of wealth…every day. Some of these transactions are good, he says, and some maybe not-so-good, but they all ripple through everything and affect everyone in the country to a greater or lesser degree. You may not notice these transactions, Minet observes, but they’re happening out there…billions of them…right this minute. And the Trump tax cut of 2017 is one of them…admittedly a very large exchange of wealth—large sums of money restored to the wealthy and businesses through tax cuts. And, as with all transactions, these latest tax cuts are trickling down. Trickle—trickle. As Minet puts it, “You can clearly see it rippling through to everyone.”
There’s that all-inclusive word again…everyone. Minet argues the increased profits and wealth delivered to businesses and individuals by massive tax cuts increase their standard of living. That we can easily believe. But he also argues that the trickle down effect means everybody’s standard of living is increased, as well. We need to stop and examine that.
We’ve heard that a lot of businesses are sharing their tax-cut largesse –their increased profits—with their workers through bonuses and pay raises. That certainly sounds like trickle down at work. But available stats don’t support it. The conservative group…Americans for Tax Reform…estimates about 870-thousand employees received one time bonuses up to a thousand dollars after the tax cut was signed. They estimate as many as two million workers will see either a bonus or a pay raise, maybe more than two million. Here’s the snag… according to Statistics.com, U-S businesses employed 125 million, 970-thousand workers in 2017. That means about one-point-five percent of American workers benefited directly from the big tax cut. I don’t understand how “everyone’s” standard of living got higher with that few workers getting the bump or the bonus.
Minet points out that business owners benefit from the tax-cut in two ways: they get more of the freed up profits through stock dividends, and…because the higher profits increase the value of the company...they benefit again when they sell the business. To those who might object that they don’t see a lot of benefit…in this analysis…for those who don’t own the company,,,Minet points out that millions of people may own a smaller amount of stock than the owners, often through retirement accounts. At this point he offers some advice. He says, “If you are jealous of some highly profitable businesses, buy a piece for yourself and share in the wealth; or start your own business.”
Okay, here are some basic facts about stock ownership in the United States: First, the top 20 percent of wealthy households…those with an average net worth of three million dollars… own more than 90 percent of all stocks. Only 13-point-9 percent of American households directly own any stocks and 35-point-4 percent of households indirectly own stock…through a retirement account, for instance. A full 50-point-7 percent of American households…more than half…own no stocks at all.
If investing in the stock market was as easy as Mr. Minet suggests, why aren’t more Americans doing it? I think we can shed some light on that question. According to “gobankrates.com”, 64 percent of Americans have less than one-thousand dollars in a savings account. They likely can’t afford to buy stocks, much less follow Mr. Minet’s other advice and start their own company.
Mr. Minet acknowledges that many workers might get their foot in the stock market door through a retirement account. But the picture isn’t a lot brighter there. Retirement accounts are generally used to supplement Social Security income. The expectation is that workers will have a sufficient balance—a balance of at least $250-thousand is recommended—so they can use the interest from the account as retirement income. But the Economic Policy Institute reports the average retirement savings in 2013 was less than 96-thousand dollars. But even that average is misleading. It skews high because people with large incomes put more money away for retirement. The median retirement savings account balance in 2013 was 60-thousand dollars. The median savings for all American families in 2013—total savings they might be looking to for income in retirement—was 5-thousand dollars. Not much to drasw on in retirement.
At this point in his column, Mr. Minet corrects himself. Considering all the ways everyone will benefit from the tax cut…bonuses, raises, stock portfolios, retirement accounts…he says “it’s more like gush-down than trickle-down.” Why does it work so well, you might ask. Why do business owners share so much with their workers? For one thing, he says, “Businesses are run by real, sentient people, so generosity might play some small role.” But mostly, he says, it’s just the normal operation of the free market: Businesses value employees highly. They want workers to be happy and to stay with the company. It costs money to train replacements. Increasing profits produced by trickle down increase competition for the best employees. Therefore: owners boost wages and benefits to keep good workers and maintain those profits. Higher profits, he argues, increase competition and drive prices downward, which again benefits everyone. It’s just a fact, Minet asserts, that 100 percent of every dollar saved by the tax cut must “flow through to the benefit of people: owners, employees, and customers.”
After looking at the 2017 tax cut, and all others since 1964, the New York Times’s David Leonhardt contradicted Minet’s claim. “The rich have not only enjoyed the largest pre-tax raises—by far—for decades,” Leonhardt reports, “while the middle class and the poor have suffered from slow-growing incomes and tax rates that are higher today than in the mid-1960s.” Leonhardt backs that up with statistics compiled by economists.
First, from 1964 to 2014, the top 10 percent of Americans—in terms of income—have seen their incomes increase by nearly 200 percent….while income for the bottom 50 percent has risen by only 35 percent. The economists conclude that middle-class and poor families in the United States face higher total tax rates today than they did 50 years ago, while, taxes have done down 2-point-1 percent for those at the very top of the income scale. In other words, the people who have experienced the largest increase in income over the past five decades have also seen the greatest reduction in their taxes. If you ask why low income families aren’t saving or investing in the stock market, that’s the answer. They simply don’t have the money. As economist Gabriel Zucman noted, “It’s part of the reason you have such high wealth inequality.”
Maybe the Trump tax cut will be different. Maybe Roy Minet is right, and tax cut benefits will trickle down and raise everyone’s standard of living. But the non-partisan Tax Policy Center…after analyzing the new law…concluded it amounts to an enormous effort to increase inequality. By 2027, they predict, after-tax income for the very top fraction of earners will be up three percent. Income for the 40 percent of workers in the middle of the scale, it will be down nearly one percent. For the bottom 50 percent, incomes will be down a full two percent. Considering how little have now, with which to make ends meet, the future does not look rosy.
I’m not sure if numbers have put a human face on the realities of the tax cut and the current financial struggles of many, many Americans. I am convinced that trickle down is…as some have said…a cruel hoax…that will provide no benefits and may even harm America’s low income and poor families in the long run. And there are lots of them. In 2015, 12-point-7 percent of all Americans were living in poverty—that’s about 41 million men, women and children…of all ethnicities… on or already over the edge of disaster. And their circumstances will only get worse if Trump administration efforts to dismantle the social safety net…things like food assistance and health care and affordable housing and quality public education…prove successful.
The Obama administration tried to help the less fortunate. They expanded health care and other middle class programs, tried to expand Medicare and low-income tax credits. Donald Trump vows to undo the legacy of America’s first black President. He’s already begun the demolition. (More on that in a later episode.) Right now, I’m sure I can’t imagine what it’s like to be part of a low-income family in the U-S today. Heaven help them in the near future. It’s unlikely our government will.
That’s it forIf your eyes glazed over part way through, you might check out the print version at: the65yearoldjournalist-dot-wordpress-dotcom. The title is “Hardly a Trickle.” Thanks for checking out this podcast. I hope you’ll listen again and get involved by sending your questions and comments to me at : firstname.lastname@example.org. That’s email@example.com. The theme music you are about to hear rising up under my voice is called, “Awkward Situation” by Borrtex. Thank you again for joining us today. If you like the podcast, please tell your friends. Part of the mission here is to provide a corrective to the misleading and deceitful harangues of right wing demagogues and talk show hosts, who have been punching the daylights out of legitimate, dedicated professional journalists for far too long. Together, we can make a difference. I’m Mark Kelley. And this is “Nailing It Down.”