Why is the Government Flogging The Trickle Down Dead Horse?

Posted on September 26, 2022

What is Trickle-down economics? Well, it is a theory that claims tax cuts to the wealthy will trickle down to middle and low-income earners. The tax cuts go to businesses, high earners, and dividends

Why Doesn’t it Work?

The assumption is that investors, savers, and business owners drive growth and use any extra cash from tax cuts to expand. As a result, investors will buy more companies and stocks and banks will increase lending. Business owners then invest in expansion and employ more staff. This expansion then trickles down to the staff who spend their wages and hey presto, you have economic growth.

The trouble is, it doesn’t work. For several decades, it has been tried, tested, and failed. Why? Well, because when the wealthy are given tax breaks, they generally keep the money, rather than investing in hiring more workers or paying existing workers more. The extra cash stays at the top.

Trickling Up

In fact, trickle-up economics is far better for raising GDP. In an International Monetary Fund (IMF) report authored by five economists, it is argued that “increasing the income share of the poor and the middle class actually increases growth while a rising income share of the top 20% results in lower growth—that is, when the rich get richer, benefits do not trickle down.”

The IMF states the fact that expenditures of middle- to low-income sectors are the drivers of economic growth. Even a paltry 1% increase in wealth for 20% of low-income earners yields a 0.38% growth in the gross domestic product (GDP). Yet, on the other hand, increasing the income of the top 20% of earners actually results in a 0.08% decrease in GDP.

These are not speculative studies they are facts. So, with money from tax cuts staying where it is, everyone loses. The tax man, public services starved of revenue, and the middle to low earners, all feel the effect of the wealth divide getting bigger.

Why Indulge in Folly?

So, why is the UK government indulging in such folly? There is a possibility that they are so deluded, they genuinely think it will work. That seems inconceivable because even people with basic intelligence can see that it is madness. So what could the other reasons be?

Maybe they are so dominated by their donors, they have been forced down that road. Take a look at Truss’s election donors in the recent leadership election. They were all from the oil and banking sectors. These people don’t hand out donations to be nice. They want something back. Tax cuts probably.

The Final Raid?

The final reason could be that the government think this might be the final raid for their donors before the public boot them out. They know that trickle-down doesn’t work but they don’t care. They have two years to make themselves as much money as possible and leave a new government trying to mend a broken country that as a result of trickle-down failure, is starved of public funding in areas such as health and education.

If the public, brainwashed by The Sun, The Mail, or The Telegraph, votes them in again, the government can claim that any remaining public services starved of income are inefficient, and need privatising.

Aaah, privatisation of public services…another ideology has been proven not to work whilst a chosen few get very rich.

1 Reply to "Why is the Government Flogging The Trickle Down Dead Horse?"

  • Trevor
    September 26, 2022 (11:49 pm)

    Yeah, looks like a deliberate tactic to me, much as she’d like to be the Poundland-Thatcher, Truss isn’t a long-term PM. I suspect it’s the final raid that you describe. The Tories can’t lose on that one – line their own pockets in double-quick time, appoint their mates to lavish government boards and brace for a general election where, because they had such a massive majority last time around, they’ll either lose or (even possibly) win by a small margin. A minority labour government won’t be able to un-pick things during their term of office and the economy will be so trashed by the time they pick it up they won’t be able to develop much either. Like you say they’ll then limp along (and knowing labour have numerous bouts of in-fighting anyway) before Murdoch’s media gets them voted out and the tories are restored for another 20 years.

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