Most Americans scoff the idea of ‘trickle down’ economics because to them it sounds like a flimsy excuse to give out tax breaks to the rich. But some Americans support the idea, and believe that money does trickle down from the rich when rich people are left to keep most of their money.
The reason why most Americans scoff the idea of trickle down economics is that most Americans do not fully understand the idea. Most American’s believe that people own what they earn so if anyone owns more then they earn, the Government should tax what they own to pay for shared (societal) obligations. But the proponents of ‘trickle down economics’ have a different view.
According to them, what people have earned is not necessarily equal to the work they put in to get it, and societal obligations are mutually beneficial services. According them, the economy is a spontanious system of free exchanges of wealth that people create; exchanges that include: a product for a profit margin, work for what people will accept to do work, and (sometimes) skills for what a business is willing to pay for them. Therefore the value of what you do is: what you demand to do it, what people are willing to pay you to do it, and/or what people pay you for what you make. And according to them , shared obligations are not just abstact obligations, but collectively established obligations that are mutually beneficial. Therefore a higher tax on the rich is viewed by them as stealing.
If we should all agree to establish a mutual obligation for the service of education for eachother and it collectively costs 6% of our income, then we should all pay 6% because that is the cost of the education system. And if people like board chairmen and entreprenuers must pay 25% so that everybody else only has to pay 3%, then the chairmen and entreprenuers are buying it for everybody else because what everybody else is paying is not sufficient to make the service possible for themselves. And if it is true that these rich people have not ‘earned’ their income, neither have the people who are taking it. But, infact, they have earned it more then the people taking it because they created their skills or products which they are exchanging for their income or profits. Therefore, (according to this set of beliefs) they deserve to keep the income they make, and a high tax on them would, essentially, be stealing.
Of course most people don’t see things this way so it is hard for them to give any consideration to the idea of ‘trickle down economics’ since, to them, it just sounds like a flimsy excuse to give tax breaks to the rich. Though trickle down economics is scoffed by most people as a excuse to give tax breaks to the rich, it is not, money actually does ‘trickle down’ from the rich. Not as much as some trickle down proponents like to think or would like people to think, but some money does trickle down.
Contrary to what liberal politicians would like people to think, the money that rich people are unable to spend does not go into a black hole. As any reasonable person should expect, when people cannot figure out how to spend all their money, they invest what they cannot spend. There is the theory that originated from Edward Keynes that the shortage in consumer demand coming from the rich causes economic problems, but that theory has no historic evidence.
The rich contribute greatly to America’s economic investment. Aside from housing investment which does not create real economic growth, the top 1% of income earners contribute to over a two-fifths of America’s economic investment (www.mybudget360.com). Therefore the more money rich people are allowed to keep, the more investment there is. And, of course, the more investment there is, the more economic growth there is.
The immediate benefit for the middle class from money trickling down probably wouldn’t be substaintail if it was weighed against the possible gains that could be made from shifting the tax burden back to the rich, but eventually income growth would add up for the middle class, and then as decades pass it become more and more beneficial to the middle class. The point of ‘trickle down economics’ is that , a moral tax code pays off in the long run. Of course, those who think the economy is a pie of wealth that is collectively divied up will always oppose trickle down economics, because there is always a loss in the now to “giving a larger slice of the pie to the rich.” But maybe those who understand that it is a free market have no reason to oppose a more even tax code, because its reasonable to not tax people for the reason that their labor doesn’t equal their ‘earnings’ or because you’d like to buy the middle class a tax cut with their money.