Today’s #nusp2018 is on #trickledown. Does it work? Stay tuned!
Group 1 argues it does. First point, trickledown dose not redistribute, it works because it creates extra resources
Group 1 starts from the Laffer curve. Then they mie to investment and job creation, i.e wages and revenues, then the multiplier kicks in
Second channel: technology. Investment brings productivity increases and eventually long run growth. Both benefit all income brackets
Third channel: trade/competitiveness lower taxes on companies reduce costs , boost exports, improve income for all.
The bottom line of group 1 productivity increase, the ultimate source of growth, is boosted by tax cuts to the rich and corporations
Question from the public: how can we make sure that the tax cut is invested and not saved? Answer: studies show negative correlation between investment and tax rates
Question, what about the low correlation between ax rates and growth? The group answers focusing on corporate tax rates.
Now to group 2, arguing against trickledown as an engine for growth
Group 2 starts from propensity to consume, lower for low income individuals
The wealthy do not invest but put savings into tax havens.
IMF study:?incone stare of bottom 20% is positively (not negatively) correlated with growth
So extra savings for the rich do not go towards investment
Case study: Kansas. Lower tax rates did not lead to higher growth
They actually go mostly into stock buybacks (Trump tax rate drop)
On top of everything, the laffer curve does not work, so debt will increase and will have to be reduced by cutting services for low income households
What would work better?
A) cut taxes to the middle class; this increases propensity to consume
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