The Prosperity Gospel of Trickle Down Economics

The Prosperity Gospel of Trickle Down Economics August 16, 2012

It suddenly occurred to me this morning that there are important similarities between the prosperity gospel nonsense preached by so many televangelists and the trickle down economics favored by conservatives. In the first, fabulously rich hucksters tell their followers that they will become rich too, if they only send in more money; in the second, fabulously rich politicians and corporate executives tell their followers that they will become rich too, if only they’d make them even richer by cutting their income taxes.

Both of these fantasies manage to survive even though the evidence is clearly against them and should be obvious even to the dullest of those who buy into it. Prosperity preachers are forever telling their followers that if they would just send them money, God will send it back to them ten-fold, or a hundred-fold. So people give money, in huge amounts, and that prediction is proven false; they don’t suddenly become rich. If the preachers really believed their scam, they’d be giving money away rather than demanding that others give it to them. And yet they keep believing that nonsense and keep sending in money.

Likewise, Republicans are forever telling their followers that if they would just cut taxes on wealthy Americans and on corporations, those “job creators” would unleash an economic boom that would provide jobs by the millions. But here again, experience clearly says otherwise. Those taxes are lower now than they have been in decades, while corporate profits are breaking all previous records and so is executive pay. So where are those jobs they promised? The economy was creating far more jobs from 1993 to 2001, when the top marginal tax rate was 39.6% rather than the current 35%.

Maybe — just maybe — economic growth and job creation is a function of the interplay of a huge range of factors and marginal tax rates, at least below a certain threshold, have little to do with it. In fact, since 1950, the correlation is directly in opposition to the Republicans’ prosperity gospel tax policy. When the top marginal rate is above 50%, GDP growth is a full percentage point higher than when those rates are below 50% (2.7% vs 3.7%).

Bear in mind, of course, that marginal tax rates are not the same thing as actual tax rates. From 1950 to 1963, the top marginal rate was 91%; that doesn’t mean that the wealthy were actually paying 91% of their income to the government, for crying out loud. If anyone did pay such a rate, the Republicans would be right that this would undermine their ability to invest and create growth. But that simply isn’t the case below a certain threshold. And the debate now isn’t between 35% and 91%, it’s between 35% and 39.6%. But to listen to the Republicans tell it, we must have been living in a socialist hellhole during the 1990s, must have been living in a terrible dystopia, a virtual great depression, when they paid that second, slightly higher, rate.

Oh wait, we weren’t. The country averaged 4% GDP growth during those years, compared to only 2.8% in the years prior, and had 116 consecutive months of economic growth. 22.5 million jobs were created while Clinton was in office, the most during any presidential administration ever. That’s not because the top marginal rates were higher, of course; higher taxes on the wealthy don’t create growth. But it’s also clear that higher taxes don’t impede growth either, at least up to a certain point that we are nowhere near. And that’s because those tax rates are simply not a factor when it comes to growing GDP and creating jobs.

So no, you aren’t going to get rich by sending more money to Christian hucksters — or to corporate boards of directors.

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