Fiscal Cliff Deal Demonstrates the Fantasy of Trickle-Down Economics

Last night's passage of the fiscal cliff agreement in the House of Representatives highlights a few important points: that Washington is broken, that a leaderless House GOP is in chaos, that Eric Cantor and John Boehner are working against each other and at cross-purposes, etc. You're going to hear a lot about that in the coming days, so I'm not going to waste your time writing a post you'll be able to read pretty much anywhere else.

Instead, I'm going to use the fiscal cliff deal to demonstrate how Republican explanations of economics are complete BS. As part of the deal (or, more accurately, because the deal completely ignores it), the payroll tax cut holiday will expire, hitting middle- and lower-income workers the hardest. Meanwhile, households over $450,000 and individuals making $400,000 or more will also see their taxes go up. Here's a fun game: guess whose tax hike will slow the economy more, the wealthy's or the rest of us?

Associated Press:

The higher taxes on the wealthy will probably slow the economy a little bit. But a bigger drag would come from a tax increase Democrats and Republicans aren’t even bothering to fight over: the end of a two-year Social Security tax cut. The so-called payroll tax is scheduled to bounce back up to 6.2 percent this year from 4.2 percent in 2011 and 2012, amounting to a $1,000 tax increase for someone earning $50,000 a year.

“It’s a huge hit,” says Joel Naroff, president of Naroff Economic Advisors. “It hits people whether they’re making $10,000 or they’re making $2 million. It doesn’t matter who you are... The lower your income, the more of your income you’re (spending). So if your taxes go up, it’s going to come out of your spending.” And that is bad news for an economy that is 70 percent consumer spending.

Mark Zandi, chief economist at Moody’s Analytics, calculates that the higher payroll tax will reduce economic growth by 0.6 percentage points in 2013. The other possible tax increases — including higher taxes on household incomes above $450,000 a year — will slice just 0.15 percentage points off annual growth, Zandi said.

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Corporate Parasites and the Failure of 'Trickle Down Economics'

If you want one clear message coming from the Occupy Wall Street crowd and the 99-percenters, you can boil all they're saying down into one argument; Reaganomics has failed and should die. After decades of bending over backwards to make sure that helped the wealthy become as wealthy as humanly possible, we see no real positive results. "Trickle down" economics is really the economics of scavenging -- if the wealthy have a big feast, they'll leave a lot of crumbs. And, as we shift the role of government away from helping people to helping business, even the holes left by cutting spending benefit corporations. Remember that after Bill Clinton ended Aid to Families with Dependent Children, the only real positive impact the reforms had were for the financial industry. A whole new market opened up and payday loan outfits sprouted up all over the nation like mushrooms, charging usurious rates to people with nowhere else to go. And of course, poverty is at an all-time high.

If this is a successful economic model, I think I'd prefer the old "failures" of New Deal liberals, thanks.

Still, all that wealth is sitting up there, just waiting to trickle down. We've sent pots and pots of money up the economic ladder all these years with pretty much nothing to show for it -- except this:


Chart courtesy of Mother Jones

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