TIMOTHY NOAH SEPTEMBER 19, 2011
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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 outset—the 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!
19 comments
We really need the Fairness Doctrine back again. Because it's the ability of Fox News to be a conservative Propaganda outlet, unleavened with any need to acknowledge reality, that has allowed the public discourse to wander so far from any truth. So "Supply-Side Economics" is now mainstream. In fact, Keynesian Economics are looked at as "liberal over-reaction". And no facts or reality are any longer able to convince a large minority (Republicans) or their more extreme but even smaller minority (Tea-Party) that implementing the dogmatic policies they espouse will dig the recession deeper. In fact, that it's those very policies of de-regulation and unaffordably low taxes that CREATED the recession in the first place. And the more time goes by, the more extreme and disconnected from reality their positions become, even as they claim to be mainstream. This is a very dangerous dynamic.
- AllanL5
September 19, 2011 at 10:37am
Here's the Reagan quote making the rounds this morning in response to Obama's proposal: "Socialism only works in two places: Heaven where they don't need it and Hell where they already have it".
- rayward
September 19, 2011 at 10:45am
Another answer: I believe "Supply-Side" became mainstream when Bush-II used it as justification for his tax-cuts in 2000, which the rubber-stamp Republican Congress rubber-stamped. That, or when Dick Cheney (or was it Karl Rove) said "Reality is what we SAY it is".
- AllanL5
September 19, 2011 at 10:56am
It was Karl Rove.
- Timothy Noah
September 19, 2011 at 11:13am
Mitch McConnell a Democrat from Kentucky? LOL!
- subterran
September 19, 2011 at 11:17am
The phrase trickle down economics preceded the advent of Reaganomics, which, for me, is the belief that lower tax rates will yield more revenue than higher tax rates. I had first heard the trickle down phrase in 1972 and it was cynically described as "fertilizing the soil by feeding the horses." Supply side economics is, for me, the belief that by freeing up businesses with less regulation and (I suppose) lower tax rates, the economy will do better. We have low tax rates now and there is plenty of evidence of a lack of regulations; but we have a poor economy. Other factors affect the economy more than regulations and taxes.
- Nusholtz
September 19, 2011 at 11:49am
I'd like to hear Democrats start talking about "Demand-Side Economics".
- aboufade
September 19, 2011 at 11:58am
If supply side works so well, then why the hell doesn't Paul Ryan just open a match factory and make a billion matches? I doubt most business believe in such nonsense themselves, it is just marketing to let them keep more profits for themselves and to pay their workers less but they are now in serious danger that all companies will do this leading to less profits as there will be fewer people to buy what they offer. It is funny, in China they are now trying to stimulate domestic demand by offering health care, etc. because they Chinese government sees the high savings rates of their workers is based on economic insecurity.
- blackton
September 19, 2011 at 1:09pm
Of course the italics are yours, Timothy. You are not quoting anyone. And you employ a pleonastic phrase, "a hoary old Republican doctrine." Hoary is old. Keep up the great work; your posts have been first-rate. I wish to commend you, too, for interacting with us readers. Jonathan Chait would almost never deign to communicate with the TNR rabble. No, we don't need a return of the Fairness Doctrine, A. Let the ideologues fight it out with the counter-ideologues, and with those of us who are sensible denizens of the center-left (like myself) and the center-right (e.g., Conor Friedersdorf, Andrew Sullivan, Bruce Bartlett, David Frum). Also, that was quite a feat for GWB to get tax cuts passed when Big Bill Clinton was still president in 2000.
- liberalref
September 19, 2011 at 1:39pm
libref - I may be misreading the post, but I do believe that all of the [italics mine] insertions are within single large quote of one William Greider.
- Nari224
September 19, 2011 at 2:21pm
Oops, Nari, I believe you are right. Thanks. I thought that was the case at the outset, but then I went over the post again two or three more times and it seemed to me as if I was reading Timothy's words. I rarely make a mistake of that kind. I was having problems in even getting to where I could make a comment. It took me about an hour because, first, my browser was being extremely slow, and then, every time I started writing, I would get thrown off the page, which happened three or four times, and which played havoc with my concentration. Still, I should have scrutinized TN's post more carefully.
- liberalref
September 19, 2011 at 2:46pm
Noah-nothing. Again you miss the point. 1. 'our economy depends entirely on rich people maximizing their incomes.' Not just rich people, but those who aspire to be rich. It is called Capitalism. And without it liberal parasites have nothing to eat 2. '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'. Miss the point, if you are successful when starting a business, then you do become rich over time. It is called the American Way. And liberals are too pathetic to begin to understand this, with envy replacing reason. 3. ' real estate speculators and day traders ...need to maximize their incomes. By God, they built this country!' What are you talking about -- there are no rich real estate speculators and day traders these days. Another name for Capitalism -- Creative Destruction. 5 minute rule... back to creating value so that liberals can squander it.
- mr_rationale
September 19, 2011 at 3:47pm
Our economy depends entirely on consumers' ability to sustain consumption. We're kind of like Achilles: though the US is unmatched in its capacity to consume stuff and create and scale up businesses to meet this type of demand, we are starting to run up against both resource constraints that say this can't continue forever and domestic consumers who are earning less, even as consumption dominates our economy (70% of GDP; this leaves out the informal economy). To the extent that money goes to the rich never to be seen in the consumer economy again, its disappearance hampers our capacity to grow and make wise investments. This is the story of the last 30 years.
- chaitless
September 19, 2011 at 4:23pm
but those who aspire to be rich. It is called Capitalism. And without it liberal parasites have nothing to eat ha, that is hilarious. It is funny, just yesterday I did some fishing in the ocean and caught my lunch, I also picked some limes from a wild lime tree on public land and had myself a mighty tasty lunch. I had no idea a rich person put the fish in the ocean or the lime tree on public land, I guess they also produce the air I breathe. Is Mr. Rat trolling himself?
- blackton
September 19, 2011 at 4:56pm
"Capitalism -- Creative Destruction" Mr. Rat! You are right. Capitalism doesn't create anything it only destroys. It simply destroys through the redistribution from those below to those above. Hence the rationalization by those above who destroy the landbase, air, water, people, other species for "profit" and paper money as "right" and "good."
- singlspeed
September 19, 2011 at 5:42pm
Liberal parasites? LOL; WE didn't send our jobs to China; schmucks.
- Sophia
September 20, 2011 at 3:16am
On the other hand, maybe this proves trickle down works! It's like Perry's prayers for rain. It did rain; in New England! So, it trickled down in China; what could possibly be bad?
- Sophia
September 20, 2011 at 3:17am
Following Ryan's logic we shouldn't tax the rich at all.
- paskunac
September 20, 2011 at 6:34am
I remember Sam Donaldson saying as The Gipper was leaving office: "He was great with the quotes but low on substance." It's taken 30 years, but Reagan's policies have officially ruined the US.
- pdougherty
September 20, 2011 at 7:47am