Derided by critics, trickle-down economics gets another try

Does money roll downhill? In their drive to cut taxes, President Donald Trump and congressional Republicans are betting it does.

Behind their legislation is a theory long popular among conservatives: slash taxes for corporations and rich people, who will then hire, invest and profit — and cause money to trickle into the pockets of ordinary Americans. The White House says the plan’s corporate tax cut alone would eventually raise average household incomes by US$4,000 a year.

The tax plan’s “trickle-down” approach was popularized in the 1980s during the Reagan administration, though it dates back at least to a 1932 wisecrack by Will Rogers. And history shows it has a spotty record of delivering on its promises.

The Republicans’ latest version of the approach edged closer to the finish line Thursday when the House passed its form of the bill; the Senate is working on its own. Republicans hope to send final legislation to Trump by Christmas, though it’s unclear whether they can succeed by then.

Among the key planks in their legislation: Shrink the corporate tax rate to 20 per cent from 35 per cent. End or ease the inheritance tax on the wealthiest estates. Cut taxes on business partnerships. Offer a temporary tax cut on corporate profits held abroad. Repeal the alternative minimum tax on very high earners. And reduce personal income tax rates for many.

The nonpartisan Tax Policy Center has found that the House tax plan would deliver an average tax cut of $360 for middle-income taxpayers in 2027. A far more generous bounty would go to the highest-earning one per cent: an average tax cut of $62,000. For the top 0.1 per cent, the gain would average $321,000. And the income tax cuts for individuals would expire within the next decade. By contrast, Republican lawmakers say the tax cuts for corporations need to be permanent.