what is trickle down economics 
trickle down economics and its policies employ the theory that tax breaks and benefits for corporations and the wealthy will trickle down and eventually benefit everyone tools like reduced income tax and capital gains tax breaks are offered to large businesses investors and entrepreneurs to stimulate economic growth investopedia candra huffunderstanding trickle down economicstrickle down economics is a common political debate associated with supply side economics while there is no single comprehensive economic policy identified as trickle down economics a policy is considered trickle down if it disproportionately benefits wealthy businesses and individuals in the short run but is designed to boost standards of living for all individuals in the long run both president herbert hoover s stimulus efforts during the great depression and president ronald reagan s use of income tax cuts were described as trickle down supply side economics theorists believe that less regulation and tax cuts for corporations and high income earners trigger company investment and stimulate employment trickle down economic policiescorporate income tax reduction tax cuts for the wealthy and deregulation are the initial steps of a trickle down policy as more money remains in the corporate sector business investment may be triggered with new factories upgraded technology equipment and an increase in employment wealthy individuals may spend more creating more demand for goods in the economy the increase in the labor market leads to more spending and investing creating growth in industries such as housing automobiles consumer goods and retail the boost in the economy leads to tax revenue increases and according to the trickle down economic theory the additional revenue will pay for the original tax cuts for the wealthy and corporations trickle down economics and the laffer curveamerican economist arthur laffer a member of the reagan administration developed a bell curve style analysis that plotted the relationship between changes in the official government tax rate and actual tax receipts known as the laffer curve the nonlinear shape of the laffer curve suggested taxes could be too light or too onerous to produce maximum revenue a 0 income tax rate and a 100 income tax rate each produce 0 in receipts to the government at 0 no tax can be collected but at 100 there is no incentive to generate income suggesting that specific cuts in tax rates would boost total receipts by encouraging more taxable income laffer s idea that tax cuts could boost growth and tax revenue was quickly labeled trickle down under president reagan between 1980 and 1988 the top marginal tax rate in the united states fell from 70 to 28 between 1981 and 1989 total federal receipts increased from 599 billion to 991 billion 1the results empirically supported one of the assumptions of the laffer curve but could not prove a correlation between a reduction in top tax rates and economic benefits to low and medium income earners criticism of trickle down economicsalthough trickle down theorists argue that more money in the hands of the wealthy and corporations promotes spending and free market capitalism it does so only with government intervention critics argue that the added benefits the wealthy receive can distort the economic structure as lower income earners without an equal tax cut adds to income inequality many economists counter that cutting taxes for the poor and working families boosts the economy by increasing spending on goods and services whereas a tax cut for a corporation may go to stock buybacks or increased savings for the wealthy many factors drive growth including federal reserve monetary policy and lowering interest rates trade and exports sales from u s companies to foreign companies as well as foreign direct investment from corporations and investors overseas contribute to the economy in december 2020 a london school of economics report by david hope and julian limberg was released which examined five decades of tax cuts in 18 wealthy nations and found they consistently benefited the wealthy but had no meaningful effect on unemployment or economic growth 