Giving tax breaks and other financial benefits to businesses and top income earners as a way to stimulate the overall economy has been a very popular idea with many in our country. It is a theory that has most commonly been referred to as “trickle-down economics.”
The idea is that money will eventually work its way down from the rich into the pockets of the needy through general reinvestment and job creation. While there may be economic indicators that support this theory, it seems the only thing trickling down from the top is a whole lot of foolish, greedy talk.
Many bankers and other wealthy investors who were once in dire monetary trouble are now finally turning a profit again. It is still early going, but instead of throwing that money back into the public market or private sector, most are hoarding their new-found wealth, fearful that they may once again find themselves in the red.
It is understandable to be fearful – especially after going from filthy rich to the verge of bankruptcy. For better or worse, this is an intrinsic trait of all humans. It is also a defense mechanism that works against the whole trickle-down theory, at least in the short term.
Another trait that goes hand-in-hand with fear is the urge to demand an immediate handout. We saw it in the banking sector and now, through demands for tax breaks and other government incentives, we are seeing it in the business and equity markets as well. (Ironic, actually, in all the tea-party, "big government" cacophony out there.)
Despite current economic indicators showing positive signs, most business leaders on TV, the radio, and the Internet are lambasting the government and its policy direction. They are demanding an actual reversal of course and sternly pleading for tax breaks.
Maybe part of it is because Ronald Reagan enacted tax cuts during his presidency and over the last few years, for whatever reason, everything Reagan has become popular. His legacy certainly is looked upon in a much more positive light despite him being out of office for more than 20 years (and despite the immense national debt and huge budget deficit he left behind.)
Economics is a complicated enigma of many factors working together, so I’m sure one can find evidence to back up any hypothesis, but even Reagan’s own advisors – the same ones that concocted the “supply-side” policies in the first place – have serious doubts to its success.
Yet, here we have business leaders, stock market advisors, and even TV show hosts screaming for the return of “Reganomics” as if its success was – and will be again – a certified slam-dunk.
One announcer on a CNBC stock market show this morning was screaming at his guests – and the audience – for immediate tax cuts for businesses in order to rescue us from these tough economic times. The host added that the current government policies and the idea of taxing the ultra rich were not only wrong, but down right atrocious (I had to turn down the volume as he was literally yelling – and not in a good, fun Jim Cramer or Dick Vitale sort of way.)
I am not sure what makes the talk show host and business leaders alike so sure of themselves when even the top economic gurus still openly debate what the best approach is.
While "Ronnie" may have some small part in all of it, the main reason is money. Any tax break is a direct savings for all companies involved and who can argue with that, right? So, any smart CEO or COO is going to fight for anything that helps his or her bottom line if its out there to be had. Then let those that enacted the legislation worry about whether it actually filters down to the rest of us or not. (Is that Gordon Gecko I hear in the background – "Greed, for lack of a better word, is good.")
Last Friday, I joined an old high school friend at a restaurant for a drink. He just started a new job as a pharmaceutical representative and he asked me to join him and some of his colleagues.
As it eventually does, the topic of politics came up. It didn’t take long for these young middle class folks in their suits and ties to voice outrage over President Obama’s spending policies and the idea of raising taxes on the wealthy.
Since I was the outsider, I stayed quiet and did not point out to everyone at the table that it would not affect them as it would focus on those that make much more than they did. As they talked, it dawned on me that they considered themselves in that esteemed upper class that would be taxed, despite facts which suggested otherwise, so shedding reality on their situation would only kill their buzz.
On the way home, my buddy echoed the feelings of his colleagues. He told me he couldn’t believe “the nerve of this Obama guy trying to raise our taxes” and how he couldn’t wait until the next election to get rid of him. I was astounded. Here was a friend I’ve known since he was a teenager; someone who could care less about politics. (That was until he quit his bartending job to push legal drugs to folks in smocks rather than those in blue jeans.)
When questioned about what truly bothered him about the whole situation, he didn’t have many answers. He ended his soliloquy with: “Well, that’s what our boss tells us all and he makes a lot of money. So, I’m sure he knows what he’s talking about.”
I simply smiled and let that one go. Not only because it was a pretty comical statement to make, but because I knew he has never been – nor will be – a registered voter, thus he wouldn't be getting "rid" of anyone. (I chalked him up to yet another soul who has fallen under the Voodoo economic spell.)
In the end, there are probably some that do take tax breaks and end up hiring more employees and reinvest in their companies, but most – basically because it's in our nature – will hold on to any extra cache that comes our way.
The idea of trickle-down economics was actually put in motion in the late 1890s. Back then it was referred to as the “horse and sparrow theory.” It was termed so by the premise that “if you feed the horse enough oats, some will pass through to the road for the sparrows.”
Unfortunately, the only thing truly passing through is a whole lot of greedy, noxious air.