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Can Tax Cuts Be Considered "Trickle Down Economics"?

A refutation of arguments espoused by tax cut critics

By M APublished 7 years ago 3 min read
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Critics of tax cuts as governmental policy often claim that this approach to economics primarily serves the interests of the rich, whose niggardliness and cupidity only allows the poor to benefit from whatever "trickles down" the hands of their wealthier class counterparts. However, this assertion could not be further away from reality, as I will briefly explain herein.

First of all, for the sake of pragmatism, let's see what empirical research has to offer on tax cuts. There is no dispute in classical economic theory over the fact that tax cuts positively affect supply and incentivize producers to invest in newer, improved technical capital, overall improving the life standards of consumers in the long term. However, more recent empirical research can be used to further support this contention. One of Chicago University's assistant professors of economics, Owen Zidar has published a study entitled "Tax Cuts For Whom? Heterogeneous Effects of Income Tax Changes on Growth and Employment" [1] which proves that tax cuts for all income brackets and classes, result in some economic growth and decrease in unemployment, the most notable incentive boost and stimulative effect being for the bottom 90% of income earners. Even though the conclusion of the study indicates that tax cuts only marginally stimulate top income earners, it nonetheless proves that working class and middle class individuals greatly benefit from fiscal relief, which dispels the myth that tax cuts per se are an instrument used by the haves to oppress the have-nots and to further make bridging the income gap between them impossible.

Nevertheless, I am well aware of the fact that in order for tax cuts to work efficiently, the tax revenue lost in the process must be offset by government spending cuts, which can often result in a diminution of welfare benefits and the shrinking of social safety nets, both of which are said to hurt the poor and CAN effectively hurt the poor in some circumstances. This claim is somewhat substantiated, but on the other hand, we must not forget that new jobs that are created especially by small and middle-sized enterprises serve as a cushion against such negative consequences. Forcing the segment of the population that is fit to work to adapt to new economic conditions and be weaned off welfare can significantly reduce poverty and the need for an extensive welfare apparatus. The portrayal of tax cuts as an ordeal of the poor is thus a blatant exaggeration.

A second case which can be made in support of tax cuts stems from more philosophical considerations. The libertarian/propertarian argument against income taxation has always been that it is immoral since it can only be enacted as an implicit consequence of the idea that the state owns individuals and the fruit of their labor. Moreover, progressive redistribution schemes are sometimes deemed to be counter-intuitive mechanisms utilized to punish the most productive members of society and to disincentivize bottom earners from climbing up the social ladder. As Lowell Nussbaum, the famous American journalist once said:

"A fine is a tax for doing something wrong. A tax is a fine for doing something right."

This is, in fact, one of the reasons why there are many proponents of a flat tax or no tax at all on the right-wing spectrum of politics. Taxation can only occur at gunpoint, in the sense that it can only be coercively implemented and enforced by the state. Even in the case of tax cuts for the rich, having the state extort less from one party cannot possibly make the others worse off. To think otherwise is the equivalent of claiming that a robber stealing less of your neighbor's property than he initially intended to will somehow have a harmful effect on you. Even if the robber were willing to share the stolen wealth with you or with the poor, the malfeasant act of forcefully taking away another person's property can never be met with plaudits or glorified.

To sum up and link the current discussion to real U.S. political developments, one can say that regardless of how you feel about President Donald Trump and where you situate yourself on the political axis, his undertakings to reduce fiscal burden should be embraced with optimism, especially by the working and middle classes.

[1]

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