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Trickle Down Economics Vs. Keynesianism Theory, Which One Really Works?

Now that Ronald Reagan has been dead for almost 10 years, people (primarily crazy liberals) are back to attacking his presidency and more so his trickle down economics or Reaganomics as it’s known as.  I’ve sat back and heard the BS attacks on his philosophy for economic growth and I am just appalled by the absolute lack of knowledge on this subject that most detractors have.  I mean, at least know what you are talking about before you attack it.

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Rather than throw out a bunch of mind numbing numbers and statistics that will bore you to sleep I’ll tell some simple facts of both trickle down economics Vs. Keynesianism theory.  Then, you the reader can decide.  The simplified definition of trickle down economics is the idea is that with a lower tax burden and increased investment, business can produce (or supply) more, increasing employment and worker pay. This lower tax would be on marginal and capital gains tax rates – especially for corporations, investors and entrepreneurs.  Reagan initially slashed the top income-tax rate from 70% to 50% and by the time he left the oval office, he was at 35%.

Reagan embodied freedom and the American way. He believed in a better America and he should be most famous for bringing back American pride and morale.  After that, he brought back the American economy, which included adding more than 18 million jobs in his eight years in office.  While he was lowering the tax rates, Reagan took a beating by opponents and responded with comments like this,

“I know you have been told by some that we should do away with the tax cuts in order to reduce the deficit. That’s like trying to pull a game out in the fourth quarter by punting on third down.”

Clearly Reagan did not agree with or support big government.  He was also quoted saying,  “You knew that in the end it was free enterprise, not government regulation, not high taxes or big government spending, but free enterprise, that had led to the building of a great America.”

So, that takes us back to trickle down economics.  Did it work and how long would it take to work?  I guess some people might say a few months after the tax cuts that it didn’t work.  Like all of a sudden people were going to get money ASAP and spend.  Not so.  It took time for the tax cuts to trickle down and funnel.  While millions of jobs were created during Reagan’s time, he is also responsible for many of Clinton’s 20 million jobs.  All those tax cuts created jobs, which created spending, which created investing, Which created entrepreneurs, which created the Internet boom.  Do you think thousands of companies would have launched without the economic policies of Reagan?  All that money that middle-class and rich had to invest was the start of the rockin’ 90’s.  So, if you take a look outside the box and away from the politics of the topic you will see it working.  His policies and the money generated took 10-15 years to impact.

Now, the bigger problem was a growing government.  Even know tax receipts were up, it wasn’t enough to keep up with the appetite of our federal government.  Those who think that Reaganomics failed because of policy need to look at the ever expanding federal budget, which now tops 2 trillion.  I know, crazy.  Maybe if the federal government remained limited as our founding fathers wanted it, America would still thrive.

Now to the Keynesianism theory, which is based on stimulating demand through government spending and other government interventions. An increase in government spending necessitates an increase in income-tax rates. I’ve never known a reasonable minded person who thinks that the government is the answer to economic prosperity.  In fact, Clinton performed Keynesianism theory tactics when he raised taxes in 1994. The largest tax increase in the history of the world.  After he raised income and capital gains taxes back up to 39%, along with

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a flurry of other taxes, our country slowly began to tank and in 2000 the stock market crashed. Known as the Dot-com bubble, it crashed and crashed hard.   Why did it crash?  Was it the Federal Reserve constantly raising interest rates (6 times between 1999-2000).  The Federal Reserve is always involved.  No, it wasn’t that.  It was the huge sucking sound for the previous 5-6 years of Clinton pulling investors money out of the economy and while these young companies still needed investors money to grow, there was none left.  Let’s not forget the Clinton also turned a blind eye to Corporate cooking of the books that lead to so many scandals, including Enron.  The Dot-com bubble was only a bubble because Clinton in-effect ended trickle down.  Clinton even said at a Houston fund- raiser, 10/17/1995,  “Probably there are people in this room still mad at me at that budget because you think I raised your taxes too much. It might surprise you to know that I think I raised them too much too.”

 

You did President Clinton.  You did.

Let me conclude with this.  President Kennedy was the true creator of trickle down economics.  In 1964, after his death, Kennedy’s bill Revenue Act of 1964 was passed. The basics were this.

  • reduced top marginal rate from 91% to 70%
  • reduced corporate tax rate from 52% to 48%
  • phased-in acceleration of corporate estimated tax payments (through 1970)
  • created minimum standard deduction of $300 + $100/exemption (total $1,000 max)

Wow.  I’ll let you suck that in for awhile.  For the record, I feel Kennedy was one of our greatest Presidents.  Liberals and democrats (there is a difference) will constantly attack trickle down economics, until they need it.  While it’s a despised theory, it’s often used to stimulate the economy. Every stimulus package ever supported and passed by democrats is  in fact, Reaganomics.   Every time a gonvenor or congress cuts taxes for the sole purpose of stimulation or job creation, its Reaganomics. When Mario Cuomo offered Merceded heavy taxes cuts (0% to be exact) to build  a plant in his state of New York, that is Reaganomics.

So noext time you hear a Democrat talking dirty about Reaganomics, just ignore them.  They have no idea what they are talking about.

 

 

 

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