The Latest Failures of Supply Side Economics


The Tax Cut and Jobs Act of 2017 is proving to be yet another failure in a long line of failures for the believers of supply side economics. The basic principle of supply-side economics and the 2017 mega-tax cut is that corporations and wealthy individuals would receive more cash (due to the lower tax rates) and invest it in new manufacturing plants, equipment, vehicles and buildings. These new investments, as the story goes, would create jobs and higher wages (the trickle-down part).


As the 2017 tax cut took effect on January 1, 2018, we are just now beginning to measure its effect on the economy as the Federal Reserve has released it’s latest 2018 economic data. The data is showing the opposite of what the trickle down corporate tax cut advocates had promised us. Total capital expenditures from corporations are lower than they were in prior years. Corporations have instead used those funds to issue dividends and buy back shares in record numbers. (More on the bullshit of share buy backs

The idea that corporations and wealthy individuals drive the economy is false. Yet no matter how many decades of data we compile, it doesn’t seem to change the conventional wisdom that economic growth is not created by this idea of “job creators”. On the contrary, economic growth is created by consumers who demand goods and services. American consumers account for 70% of economic activity. Therefore, it should come as no surprise that more income going to middle class families, as opposed to the wealthy and large corporations, would drive economic growth. We know, as a fact, that in the period of the 1950s through the 1970s, when the income and wealth distribution was at its most equitable level and the top income tax rate was 70%, the economy grew at its fastest rate in the last hundred years. In the decades that followed, when the economic policy was decidedly low tax, low regulations and increasing levels of wealth inequality, the economy experienced slower growth.

Will these latest figures put to rest the false promises of supply side economics? Probably not, but it’s important for us to continue to articulate that the promises of these policies are pure fiction.

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