Why reaganomics doesnt work

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Follow Quartz. These are some of our most ambitious editorial projects. By Gabriel Fisher. Trump's tax cuts have lifted the fortunes of the ultra-rich, according to research from two prominent economists, Emmanuel Saez and Gabriel Zucman of the University of California at Berkeley. For the first time in a century, the richest American families paid lower taxes in than people in the middle class, the economists found.

To be sure, the economy was humming along before the pandemic struck the nation in March, with an unemployment rate that was at its lowest in about half a century. Conservative think tanks such as the American Enterprise Institute pointed to Mr.

Trump's tax cuts as an engine for stronger economic growth. Yet even so, millions of American families struggled to find jobs that paid living wages, while the cost of essentials such as health care, housing and education increased at far faster rates than the typical income.

Even before the pandemic, income inequality had reached its highest point in 50 years, according to Census data. Kimberly Amadeo is an expert on U.

She is the President of the economic website World Money Watch. As a writer for The Balance, Kimberly provides insight on the state of the present-day economy, as well as past events that have had a lasting impact. He has worked more than 13 years in both public and private accounting jobs and more than four years licensed as an insurance producer. His background in tax accounting has served as a solid base supporting his current book of business. Trickle-down economics is a theory that claims benefits for the wealthy trickle down to everyone else.

These benefits are tax cuts on businesses, high-income earners, capital gains, and dividends. Trickle-down economics assumes investors, savers, and company owners are the real drivers of growth. Investors will buy more companies or stocks. Banks will increase lending. Owners will invest in their operations and hire workers. All of this expansion will trickle down to workers. They will spend their wages to drive demand and economic growth.

Trickle-down economic theory is similar to supply-side economics. That theory states that all tax cuts spur economic growth. Trickle-down theory is more specific. It says targeted tax cuts work better than general ones.

It advocates cuts to corporations, capital gains, and savings taxes. It doesn't promote across-the-board tax cuts. Instead, the tax cuts go to the wealthy. The benefits trickle down to everyone else. Both trickle-down and supply-side proponents use the Laffer Curve to prove their theories. Arthur Laffer showed how tax cuts provide a powerful multiplication effect.

Over time, they create enough growth to replace the government revenue lost from the cuts. The resulting expanded, prosperous economy provides a larger tax base.

But Laffer warned that this effect works best when taxes are in the "Prohibitive Range. If the tax rate falls below the Laffer Curve's prohibitive range, then further cuts won't stimulate economic growth enough to offset the lost revenue.