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  • Fact-Checking President Obama on "Trickle-Down" Economics

    In a recent speech in Kansas, President Obama launched a diatribe against “trickle-down” economic policies. Not only did President Obama mischaracterize conservative tax policy, but facts rebut his claim that these policies have been a failure.

    The President began by invoking his understanding of conservative economic philosophy: “If the winners do really well, then jobs and prosperity will eventually trickle down to everybody else.”

    “Trickle down” is of course a disingenuous misnomer invented by the left to stigmatize conservative supply-side economic policies. It implies favoring the rich—that doing so will “trickle down” to everyone else. Nonsense. Conservatives don’t care any more or less about the rich than do liberals. The point for conservatives is not to help the rich, but to limit the harm done to incentives by tax policy so individuals have greater opportunities to become rich.

    And the proof of the policy’s effectiveness is in the pudding. Every time supply-side economic policies have been tried, tax rate reductions were applied to every income group—lower-income, middle-income, and upper-income alike—giving everyone a better shot at success. This is true regarding supply-side policies of the 1920s, 1960s, 1980s and 2000s, when President George W. Bush took 10 million lower-income individuals off the income tax rolls entirely.

    The left relies on data showing that the wealthy received the largest break in dollar terms, but that’s only because they had higher incomes and higher tax burdens to begin with, not because tax cuts were larger for them. A 10 percent tax cut to someone earning $1 million per year is a lot more in dollars than a 20 percent tax cut for someone who’s earning $100,000 per year, when in fact the person earning the lesser amount is actually receiving a steeper percentage cut.

    Thus, by focusing on dollar amounts rather than percentage reductions or the distribution of the aggregate tax burden, the left misses the forest for the trees. For example, the marginal tax rate for individual income on top earners was 39.6 percent before the Bush tax cuts. Afterward, the rate was 35 percent—a 13 percent reduction. Meanwhile, the marginal rate for individual income on the lowest earners who qualified to pay income taxes was 15 percent. After the Bush tax cuts, that rate became 10 percent—a 33 percent reduction. And that’s in addition to the fact that Bush removed 10 million low-income earners from the income tax rolls entirely. As a percentage of income level, then, the lowest income groups received the largest benefit.

    Furthermore, according the President’s own figures, extending the Bush tax cuts would cost the government $4.4 trillion over the next 10 years. Of that $4.4 trillion, tax cuts for those making over $250,000, or the “rich,” would “cost” $700 billion, or $70 billion per year—less than one-sixth of the total cost. That means that more than 5/6 of the total cost—or benefit—of the tax cuts goes to those earning less than $250,000 per year. So, how can one argue that the Bush tax cuts benefit only the rich?

    What’s more, the wealthy now pay more of the total tax burden as a result of the cuts. Here’s economist Brian Riedl:

    The share paid by the top quintile edged up from 66.6 percent in 2000 to 67.1 percent in 2004, while the bottom 40 percent’s share dipped from 5.9 percent to 5.4 percent. Clearly, the tax cuts have led to the rich shouldering more of the income tax burden and the poor shouldering less.

    Yet the president said, asserting that “trickle-down” economics has never worked:

    It doesn’t work. It has never worked. It didn’t work when it was tried in the decade before the Great Depression…and it didn’t work when we tried it during the last decade….Congress passed two of the most expensive tax cuts for the wealthy in history, and where did it get us? The slowest job growth in half a century.

    In the 1920s, the top tax rate dropped from 73 percent to 25 percent, and the economy expanded by 59 percent from 1921 to 1929, with annual growth rates of 6 percent. Similarly, in the six quarters following the 2003 tax cuts, GDP growth shot up to 4.1 percent, from 1.7 percent before. From 2003 to 2007, the economy added more than 8 million jobs.

    President Obama misrepresented supply-side economics and then went on to misinform his audience that it’s never worked. People are entitled to their own opinions, but they’re not entitled to their own facts.

    Posted in Featured [slideshow_deploy]

    45 Responses to Fact-Checking President Obama on "Trickle-Down" Economics

    1. Zach Abbott says:

      People are entitled to their own opinions, but they’re not entitled to their own facts. Yes, indeed and I wish you had stuck to the facts. In the 1920's economic growth was spurred, not by tax cuts, but by bank loans and cheap credit. Nearly anyone could buy anything they wanted on a loan from a bank. The same is true of the 2001, 2003 tax cuts. Our economy has added about 1 million net jobs from 2001-2010. Most of the jobs added in the Bush years were wiped out during the Mortgage-backed Securities Crisis. Since then neither dumping money into the economy, nor tax cuts have truly helped the economy recover. Most likely this is a result of not being smart with government spending. Bush and Obama stimulus packages did not target sectors that promote growth such as clean energy, infrastructure, or education.

      • madogdriver says:

        clean energy results in wasted money and bankrupt companies making bad products that no one wants and are not viable. education is a money pit. more and more dollars are spent each year on education and what do we get, dumber kids. infrastructure is a temporary gig, most bridges in states like north carolina, wherever the marxist gave his speech don't require anything more than a paint job! build roads for electric cars? but what about those 200 mile per hour trains that will carry no one but be paid for by everyone!!!! just ask the Europeans! commieobami stimulus packages targeted his buddies, unions, bundlers, and big donors!

      • Gibby says:

        What a Crock! Clean energy? Ha! This is a Black Hole right now! Look at Solindra and others. Clean Energy (the green movement) is a big money suck, a good way to spend/waste tax money and we should not afford this.

    2. Zach Abbott says:

      In short, call it what you will, but supply-side economics does not work. Tax cuts at a time like this would leave the government crippled. And we've gotten used to the notion that we can cut taxes, and never have to raise them again. Tax cuts create very few jobs, and tax hikes destroy very few jobs (there is evidence that tax hikes do hurt growth in the short term). What would be much better to see is a return to Keynesian economics where the government invests in the economy with a bit of intelligence.

      • jim says:

        A crippled gov.s just what we need.All our problems have come from gov. tinkering with the economy and our freedoms. I say starve this blotted tyrannical pig and let us prosper as this country used to before progressives started weakening the constitution and pushed for big gov.. Since this movement started in the early 1900s , it has ruined the unstoppable power of free men.

      • Steve says:

        GOOD!!!! We do not want the government with its high labor costs involved in anything let alone growing itself! Your facts are proven wrong repeatedly…..all one has to do is look at socialist Europe.

      • Truth says:

        What? Tax cuts will leave the government crippled? How come economists are saying we should lower the corporate tax rate? O that's right because companies like GE and IBM are paying 0% effective tax rate because they are taking advantage of foreign direct investment and low tax jurisdictions abroad. And Obama's idea to cut deductions for companies that outsource emplyees will be interesting since he himself appointed GE's CEO, Jeff Immelt, to the Council of Jobs and Competitiveness and will now have to tell him that GE cannot take deductions for their foreign activities. I guarantee that will not go over well and Obama's plan will flop. GE can still comply with it and send workers back to the US, but their foreign lending practices will still go on, and the billions they make doing that will still never be taxed by the US government. It is flawed idea that raising taxes will help. Raising taxes is a short term quick fix. If applied, a few years after Obama, we will be in the same situation or perhaps a worse one, and Obama will be out of office and his replacement will look like a goat even though it will be misguided practices that will cause the problems that will come from tax hikes.

      • Gibby says:

        The results of tax cuts have been well documented and yet you Liberals try to re-write history. Each time tax cuts are used to stimulte job growth it works! It also increases tax revenues, yes, increases revenues!! History proves this out time and time again. you won't be able to read about this in Media Matteras, New york times, or other Left Wing Rags though. Check with the CBO, The Heritage Foundation, Wall Street Journal etc. Stop making up your own facts!!!

    3. @MBMusgrove says:

      "President Obama misrepresented supply-side economics and then went on to misinform his audience that it’s never worked. People are entitled to their own opinions, but they’re not entitled to their own facts."

      Great line, and poignant. "True until proven false in a globally public setting" is a common way too many people advance certain agendas. At times I feel like BO flies around the world saying anything he wants whatsoever, and, sadly, the majority of his listeners buy it, no matter what comes out of his inarticulate but eloquent pie-hole.

      • Nick says:

        How can one be an eloquent yet inarticulate speaker? The prerequisite to verbal eloquence would be above average verbal articulation. If someone was a mumbler he/she certainly would not be an eloquent orator.

    4. Jeff, Illinois says:

      Part A

      I think a point is missed in this article. The wealthy have much much more of the nation's wealth in general. Thus if our economic system has been such that it affords greater opportunity / prosperity for those already positioned to take advantage of our structure, then the wealthy in a progressive tax system are expected to pay back more to strengthen the entire economic base. Said another way, there should be a greater reward in general for the nation when the wealthy get wealthier. Instead, we simply have greater and greater income disparity, where the wealthiest have increased their income some 250 % in the last decade or so while the middle class has stagnated. Then to add insult to injury, large corporations and Wall Street lobby our politicians and or simply have their own legislation drawn up through groups like ALEC to create loopholes so their effective tax rate is lessened further. The working class does not have this leverage. They are at the mercy of economic winds. And at present the economic wind is pushing working class jobs out of the country because large coroporations can take advantage of additional incentives to utilize work forces elsewhere where wages and working conditions are depressed.

      • Tommy says:

        Except that 80% of millionaires are first time millionaires and more people in the top brackets don't stay there than do. The reason this 'income inequality' argument resonates is because people picture those like Warren Buffett and Bill Gates when if one were to look more into it they would notice that just by thinking about professional athletes as one example you notice that many of them don't stay millionaires. The same goes for the bottom of the pile as well. The majority of people who are in the lowest brackets move up.

    5. Jeff, Illinois says:

      Part B

      In times past the wealthy paid a much larger tax rate and somehow our nation was prospering. If the so-called trickle down notion has been set up as a straw man argument, then all the more reason to raise taxes on the wealthy to at least afford the possibility of rebuilding our country's infrastructure. Ironically that would be a real trickle down effect. Raise taxes on those doing amazingly well, and use the money to create hundreds of thousands of jobs to rebuild american roads, bridges, sewers etc. Here's a chance to realize a real need in our country and know that they helped to put many people to work to rebuild america. Why wouldn't a responsible thoughtful human being who has done well want to do that? Alas, instead there just seems to be greed! Yes, our country allows for those who just want to hoard their wealth, but there is a price to pay. And that price is the overall decline of our nation!

      • Mike, Orlando says:

        Wow, where to begin. You look at the wealthy and corporations as evil for using elected officials and their legislation to their own ends. Did they break any laws in doing so, or did they simply operate within a system that allows such behavior? So government in your world is not to blame as it is simply manipulated by the evil rich. Government 'is', 'has always been', and will 'continue to be', the problem that plagues this country. Politicians are corrupt beyond belief, and sell their office and legilsative support daily to support a political agenda a majority of this country does not support. Yet the rich are still at fault. You use the terms hoarding wealth, and greed, to describe the wealthy among us without apparently recognizing those terms ae the antithesis of each other. Allow an economic environment to exist that offers the opportunity of ROI, and watch wealth enter the system. A type of greed prompts this behavior. And we 'all' are greedy. Some are just more hypocritical about it.

        • Mike, Orlando says:

          -Cont- There is plenty to be angry about in this country, by the wealthy and/or the impoverished are not the problem. A government that have grown beyond its Consitutional mandates, and that meddles in every aspect of our lives, and ever aspect of our economy, has created societal and economic conditions so toxic that 'no one' wants to invest in anything. Even teh middle class (you knwo, the ones you say you're concerned about) are hoarding their savings and not buying. When that happens, we have recessions and depressions, all caused and perpetuated by government, not the wealthy. Get a grasp of basic macroeconomics before contributing ill formed and incorrect conclusions.

          • Jeff, Illinois says:

            I find it so tiring to speak of government as the problem and the idea that the poor misguided corporations shouldn't be expected to operate at higher level of integrity if rather they can get away with leveraging their wealth to further tip the scales in their favor. That's exactly why the 99% movement needs to stick to their stance. In essence you've made their case . . that there needs to be more regulation ( a dirty word for the Right ) to keep the wealthy from gaming the system. The problem is not that government is too big, whatever that means, but rather that the government needs to put more checks and balances in place on corrupt or unAmerican business practices.

      • Dan says:

        Isn't that what President Obama told us the 2009 stimulus was supposed to do, rebuild America to create hundreds of thousands of jobs? Now, you want more? Sorry, I'm all tapped out.

        • steve h says:

          Dan – it did exactly that. According to the non-partisan Congressional Budget Office, it saved or create about 3 million jobs. Don't beleive them – go see what Mark Zandi said it did (Zandi was McCain's campaign's economist).

      • Mike, Wichita Falls says:

        Could it be that in times past the economy was prospering, regardless of tax rates, because it was not as burdened as it is today by the bureaucracy. The federal register was a paltry 13,000 pages 50 years ago, even as low as 47,000 25 years ago, while it tops 81,000 pages today. While federal government spending is only 25% of GDP, the cost to the private sector simply to comply with it is 12% of GDP about $1.7T. What a waste! How many jobs could be created with that money?

        Although tax rates have not been raised yet on the wealthy, they might as well have been raised with all of the deficit spending approved by this President in order to buy votes, I mean prime the economy. He tells us that Keynesian policies work. They did not work in the Great Depression, as the Treasury Secretary at that time admitted, and they did not work during this recession. Where are the private sector jobs?

      • s wahls says:

        Taxes are overhead to the rich. The middle class pay the profit on overhead. Profit works out for every dollar spent two dollars profit. You don't hear corporations complaining about taxes. Name an easier way to increase profits. No engineering costs, no costs of raw materials just cash for more cash from the middle class!!! The Government gets $1, the middle class pays $3.

    6. Richard says:

      The President lied. What a surprise.

    7. Lloyd Scallan says:

      It's all been said over and over again. Obama will say or do anything to deceive the American people. He's an exceptional liar. Yet, those like Jeff- Illinios, believes taking money from the "rich" will actually create jobs, instead of the exact opposite. Only those of the same ideological bent as Obama can rationalize the absurdity of that belief or are completely out of touch with reality.

      • Jeff, Illinois says:

        Taking money from the rich will create jobs if that money is used to build the nation's infrastructure. The jobs bill from Obama was going to ensure that very thing. How can you possibly argue against that obvious one to one relationship!!

    8. Mike, Orlando says:

      "President Obama misrepresented supply-side economics and then went on to misinform his audience that it’s never worked." David, the PC nonsense needs to end if we are ever to have an honest debate/conversation. The president did not misrepresent or misinform. The president lied. If you or I behaved this way in front of a judge, police officer, or government committee, we could be jailed. He lied (and does frequently). Call it waht it really is and move on.

    9. Shelby Hager says:

      The only possible flaw in this excellent polemic is the peg to "projected" eventualities. For instance, for POTUS or the commentary to make sense we must have faith in the Voodoo projection of "$4.4 trillion in the next 10 years." Expecting us to have faith in making policy based upon such absurdities assumes that all of us failed to progress beyond the sophomoric adulation of posturing university profs and their legions of arrogant progressive Apparatchiks that populate D.C. My point is that we incur debt and are expected to pay bills momentarily, not every 10 years. Some of us understand this simplistic little piece of reality. We know that responsible people only buy what they can pay for from the palpable loot in hand at the time of, purchase. Our merchants know that our "wizardry" won't pay their bills.True! There are those who did not understand this until someone told the their Fannie Mae or Freddie Mac home was a sinister racketeer's pipe dream.

    10. Lee Burns says:

      Jeff, perhaps you are missing a very relevant point. Could it possibly be that our congress is spending the vast amount of monies that are collected from the richest americans is on the wrong things? Could it possibly be that if they chose instead to spend the money on the "infrastructure" our president so eloquently espouses instead of any number of selected programs that it is being spent on, those jobs would be generated? Seems to me that what he is demanding is to continue the reckless, ineffectual spending that is currently going on and asking for more money from the "rich" to pay for his dream. Instead of "redistribution of wealth" how about "reallocation of available funds" for the "most important" things.

    11. AD-RtR/OS! says:

      Historically, Reagan's "Trickle Down Economics" has worked much better than Obama's, and The Left's, Socialistism, aka, "Trickle Up Poverty"!

      • steve h says:

        Hardly – look at the difference in job creation, in GDP, in household worth, etc.. Obama has far exceeded what Reagan did – and Reagan had a far higher percentage increase in debt.

      • Olivia says:

        Depends on what you mean by worked. Reagan increased federal spending by about 2.5%.The federal deficit tripled between 1981 and 1989. The poverty rate in America increased during the Reagan years. The income of the top earners increased but the middle class stayed about the same as before.

      • mike G. says:

        That's wrong, growth under Reagan was spurred by tax increases- repeated tax increases. Revisit the history of his tax polices and the time of the growth periods. He cut taxes when he got into office- economy began to tank and he realized he'd have to raise them in order to generate gov't revenue and spur the economy and get re-elected. In second term he lowered them again resulting in the recession which brought down Bush 1. Let's remember he also bailed out Chrysler and implemented other bailout type plans. Reagan was much more like Obama than he was like any of the current right wing folks.

    12. Pete Houston says:

      Removing citizens from the tax roles is a major mistake. When you don't participate, you don't take ownership in the outcome. I am a small business owner and do not have a lobby account to get my tax's reduced like the "GE's" of this country. Every time I turn around another city, county, state, or federal agency is sending me a tax or fee bill. If it isn't taxes that are going up it is the healthcare for my company. The market does not provide for me to just raise the cost of the product because all these good ideas that need funding need to cut into my dwindling profits. We typically invest the profits into the business to grow and add stability into our product mix. So no profits, no investment, and eventually no future. The president is a bad liar when he professes to be helping the small business owner and that he is doing something to make this country great again. He is cutting the small business owner across the throat and bleeding us out. When the blood is gone, now what.

      • Leon Lundquist says:

        You are so right! And it deprives them of the human dignity to contribute. Every kid should say "Quit wasting my taxes!" Taxes should be equal percentage wise so that everybody would be pissed when the government runs amok! Progressives won't let poor people feel good about their tax contribution. How is that for disingenious! Fact is every American Consumer pays everything in higher prices, If the rich can't move up then we can't move up either!

    13. Dick says:

      Jeff (above) makes some decent arguments, but fails – as does the article itself – to address the actual math in terms of total revenue generated and from what source. Both Jeff and the article's author want to throw stones at each other using specific statistics to make their points, but neither makes the total revenue/source case. The real question is: does the federal govt have more money and from whom did this extra revenue come? Unless we adopt a flat tax, the progressive system we have now with all its loopholes will always be the source of argument. Under the current system, if the govt thinks the rich are paying too little, their choice is to raise rates on the rich thus making a value judgement on how much wealth is enough. But the rich are also the political friends of the politicians. And just having extra revenue without effective spending control is no good either. Finally, may we once again make the point that taxing the rich at 100% would not come close to paying for this country's infrastructure projects – a fact frequently lost on liberals (on purpose?).

    14. Richard says:

      Right-wing brainwashing at its finest.

    15. Leon Lundquist says:

      Excellent article, shows specific frauds of Obama's statistical arguments. You state exactly how Obama lies and I applaud you for it. The great big invisible elephant with no clothes on is the fact that consumers pay for everything! Add regressive taxes on gas, tobacco, alcohol and the poorest among us pay the largest percentage (because they had so little income to begin with.) Everything is passed through so that the very people Democrats claim to help the most are those harmed most by Progressive policies.

    16. rmgdonnow says:

      A few comments: BO doesn't want recovery this year; next year, so it's a campaign slogan.
      How about "trickle-down" welfare?? How many bureaucrats are required to write a hundred welfare checks?
      And do we give millionaire sports stars, movies stars and TV stars a free pass? What are the salaries of the Network "News anchors"?
      If someone (Bill Gates, The "Little Caesar" guy Mike Illich or others) have the talent to turn a business into a major success, or to write a couple of books and become President, why do we denounce them or (some of them)?………..Just wondered.

    17. David Fuhs says:

      Is this article satire?

      It is true that the Left (including Obama) want to "have it both ways" by concentrating on the tax percentage and ignoring the amount taxed in one instance (when the amount taxed is held by the "rich"), while concentrating on the amount taxed and ignoring the tax rate in another instance (when the amount taxed is held by the "poor").

      However, trying to have it both ways in the opposite direction (as the author so ineloquently does) is NOT A VALID ARGUMENT against the inconsistency of the Left.

      I asked if the article was satirical. I don't need anyone to tell me that it's a joke.

    18. Sunnie71 says:

      I love rich people because they buy all the stuff and the rich people that make the stuff give us all jobs. If they take their business or their companies to other countries what the hell are we supposed to do? No rich people to buy the stuff, no rich people to open the company to hire us to make the stuff. This isn't rocket science people. Government jobs created to build infrastructure are not permanent jobs. Once a road or bridge is fixed the job is over. I'd rather work for someone like Steve Jobs where the possibilities are endless and a job can actually last your working lifetime. Government needs to know their role and get out of the way.

    19. DavidNT says:

      I get what David Weinberger is saying, and some of his models I do agree with. However, Weinberger's use of 1920's economics as a model for economic growth is a bit distorted in the fact that it doesn't take into account the speculation investment practices that contributed to the short term economic growth but later caused the crashing of Wall Street and eventually the great depression. Readers need to know how much of the speculation practices of a deregulated Wall Street contributed.

    20. Mike says:

      The evidence is clear. Trickle-down economics doesn't work!
      http://www.decisionsonevidence.com/2011/10/do-tax

    21. Malcolm PA liberal says:

      First off we need to end this myth of small business as a growth engine, and stop the resulting pandering. Small business DO NOT grow the economy, most are out of business within a year not because of government regulations or taxes but because most people are not efficient entrepreneurs.Second supply side economics does not work, and in a recession like this we need to tax and spend. The multi-millionaires are doing great right now, and by this I mean people with a net worth of 20-30 million. Anything less than 10 million is just a high end affluent American and anyone with a few million is just affluent. We need higher taxes and government spending now more than ever so in the future millionaires won't be taxed so much. WE need to raise the capital gain tax, and eliminate corporate tax loop holes. The legislation should have a sunset provision so once we are out of the recession and debt crisis taxes will revert to normal with no new legislation. No one on the left is advocating taking a multi millionaires money and giving it to welfare recipients, but we do need money to build better schools, and fund infrastructure. No one making less than a million a year should be taxed more, only those making 5 or more million a year should be taxed.

    22. Heidi Lyle says:

      There are many studies and too much evidence indicating trickle down economics do not work. Not sure what credentials this author has but he seems very partisan. It seems logical to only extend the Bush tax cuts for the lower/middle class and invest the extra taxes on the wealthy in infrastructure. Middle class spending is what creates economic growth and stimulates the economy. The wealthy tend to hord money or line the pockets of the lobbyist who lobby to make them richer so they can hord more money. Off topic but legalizing marijuana would also help the economy and at the same time reduce organized crime and eliminate drug cartels in Mexico.

    23. Ora says:

      Trickle Down Economics did work a little at one time it does'nt any more. We live in a world of globalization where much of the benefits of hugh tax breaks end up overseas, benefits to the US economy is minimal.

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