Timothy Noah

When Did Trickle-Down Get Respectable?

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Sometime while I wasn't paying attention trickle-down economics got respectable.  

In 1981, when President Ronald Reagan lowered marginal tax rates, his main purpose was to drop the top rate from 70 percent to 50 percent (and subsequently all the way down to 28 percent; the top rate is currently 35 percent). But it was important not to admit as much, because that would be "trickle-down economics." That was the derisive term Democrats attached to Reaganomics. In 1981 the Atlantic published a profile of the White House budget director, David Stockman, in which Stockman said all kinds of impolitic things. About the most impolitic was his admission that the Reagan tax cuts had been "a Trojan horse to bring down the top tax rate." The article's author, William Greider, could barely contain his delight:

"A Trojan horse? This seemed a cynical concession [italics mine] for Stockman to make in private conversation while the Reagan Administration was still selling the supply-side doctrine to Congress. Yet he was conceding what the liberal Keynesian critics had argued from the outsetthe supply-side theory was not a new economic theory at all but only new language and argument to conceal a hoary old Republican doctrine [italics mine]: give the tax cuts to the top brackets, the wealthiest individuals and largest enterprises, and let the good effects 'trickle down' through the economy to reach everyone else. Yes, Stockman conceded, when one stripped away the new rhetoric emphasizing across-the-board cuts, the supply-side theory was really new clothes for the unpopular doctrine of the old Republican orthodoxy [italics mine]. 'It's kind of hard to sell [italics mine] "trickle down,"' he explained, '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.'"

Stockman's bluntness led many to believe that he would surely get fired. He wasn't, but the Reagan White House put out the story that Reagan had taken Stockman "to the woodshed" for making such remarks, and a cherished Washington cliche was born. In fact, Reagan did not take Stockman to any metaphorical woodshed, Stockman would later reveal in a memoir. He was much too passive a character to do that. Instead, the Gipper told Stockman that he blamed the whole thing on the press. But Reagan did tell Stockman that his comments had been damaging, and Stockman's political survival depended on his pretending that the old man had given him a whupping, because you just didn't go around saying that your economic policy was to shower rich people with money, even if you were a Republican.

What a difference three decades makes. This morning President Obama is going to reveal a package of proposed budget cuts and tax increases aimed at reducing the federal budget deficit by more than $3 trillion. Among these proposals, it leaked out over the weekend, is the so-called "Buffet rule," inspired by a recent New York Times op-ed ("Stop Coddling The Super-Rich") by the billionaire financier Warren Buffet. The details are unclear, but the basic idea is that people making $1 million or more will be required to pay a minimum tax so that they don't end up paying a smaller share of their income in taxes than do middle-income families. The Buffet rule is already a pretty drastic watering-down of Buffet's proposal, which was that people making more than $1 million should pay a higher rate compared not just to middle-income families but to wealthy families whose incomes fall below $1 million. (Yes, Virginia, many people who make less than $1 million are rich.) Buffet wrote that people making more than $10 million should pay a higher rate still. This is what's known as "progressive taxation," and it didn't used to be controversial.

Back in 1981 Republicans might not have liked a proposal to tax millionaires to at least the same extent that we tax mere mortals, but they would have been reluctant to oppose it on the grounds that our economy depends entirely on rich people maximizing their incomes. You could believe that, but you couldn't say it out loud. This inhibition no longer burdens the GOP. "When you are raising these top tax rates," Rep. Paul Ryan (R., Wisc.) said on Fox News Sunday, "you're raising taxes on these job creators where more than half of Americans get their jobs from in this country." He was talking about small businesses, about which (to borrow from my esteemed TRB predecessor Michael Kinsley) there's a common anthropomorphic fallacy that they are owned by small people, when in fact they're more likely to be owned by big (i.e., rich) people. You could argue that Buffet himself, the second-richest man in America, is a small businessman; according to his op-ed, Berkshire Hathaway, his investment firm in Obamaha, Neb., employs only 21 people (though of course the companies that Berkshire Hathaway owns employ a good deal more). The notion that small-business millionaires need to be protected at all costs is widely shared within the GOP. "We don't want to stagnate this economy by raising taxes" on small businesses, Sen. Mitch McConnell (D-Ky.) echoed on Meet the Press. You still can't say that Fortune 500 chairmen need to maximize their incomes, but it's now perfectly OK to say that real estate speculators and day traders who pay taxes as S-Corporations to dodge Social Security and Medicare payments need to maximize their incomes. By God, they built this country!

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