OPINION: The folly of ‘trickle-down’ economic policy

Once upon a time, not too long ago in America, we had federal budget surpluses as far as the eye could see. Our budget-surplus nation had an economy in which there was a direct connection between the nation’s increasing tax revenue, plentiful jobs, low unemployment and profitable businesses. Past national debt was being steadily paid off. With plentiful jobs and profitable businesses, America and all its citizens enjoyed a growing economic future because national debt shrinks and infrastructure and other programs to help ordinary working-class people could be funded. It was a very good time for everyone.

But there lurked in our nation a political idea that our economy could improve: By cutting taxes, we would increase America’s tax revenues and tax cuts would pay for themselves. Conservatives like George H.W. Bush called this “voodoo economics.” Others called it supply-side thinking. For most, the lurking idea was known as “trickle-down.”

Trickle-down advocates slickly argued that, yes, giving significant tax cuts to America’s most wealthy citizens and large corporations would make the wealthiest wealthier, but our nation’s tax revenue would also increase. The middle class and poor would eventually do better when wealth “trickled down.” What a great idea — tax cuts will pay for themselves! That sounded really good. Who doesn’t want to hear from their doctor that sugar is good for you?

What could go wrong with this simple-sounding solution where tax cuts increase tax revenues? A lot. Trickle-down policy has been disastrous to our nation.

The national debt to gross domestic product ratio at the start of Ronald Reagan’s presidency was 31%, with debt less than $1 trillion. At the end of Reagan’s years, the ratio was 50%, with debt of $2.6 trillion. At the end of George H.W. Bush’s years in office, the ratio was 61%, with debt of $4 trillion.

During Bill Clinton’s terms as president, the debt ratio dropped from 61% to 55%, with budget surpluses.

Tax cuts by George W. Bush in 2001 and 2003 and Donald Trump in 2017 were enacted. Tax cuts were again sold to voters by championing the fantasy that America would receive increased tax revenue. More than 75% of the 2017 tax cuts went to the top 1%. Tax cutters promised a painless path to prosperity: Tax cuts will pay for themselves, just believe.

What was politically promised as painless didn’t happen. We’ve felt and continue to feel pain.

Tax cuts severed the previous connection between plentiful jobs, profitable businesses and the nation’s tax revenues. Revenue did not increase; it decreased. Rather than budget surpluses, we have budget deficits. Rather than paying our debt, we have increasing deficits and debt.

As a result of the George W. Bush and Trump cuts, the 2022 debt-to-GDP ratio was 123%, with debt at $30.8 trillion. The sugar-is-good-for-you fantasy has created a nation overweight with debt.

Because of trickle-down tax cuts, corporations and the already wealthy have become much wealthier.

America’s federal deficit increases despite a strong economy. America has had 21 straight months of less than 4% unemployment. An incredible 2.4 million new jobs have been added in 2023 alone. America’s tax revenue, even with this good economy, cannot cover the deficit, expected to be more than $1.7 trillion — a long way from surpluses as far as the eye can see.

Without the fairy-tale tax cuts, the nation’s debt would be declining, not increasing as it now is.

Trickle-down experiments have been disastrously tried by some states, like Kansas, which cuts state taxes with the promise the state’s tax revenue would increase as their economy boomed. Sadly, for Kansas, state revenues precipitously dropped; Kansas got poorer until the tax cuts were reversed. The trickle-down fairytale failed Kansas and its residents. The only winners: corporations and the already wealthy.

Fiscal conservatives should be concerned that America, with yearly deficits and increasing national debt, is on unstable fiscal ground. For decades, the lurking and ruinous idea that tax cuts pay for themselves has failed again and again.

Alaska’s SB21 experiment with the tax-cut fairy tale began a decade ago. Since then, many billions of dollars went to oil companies. Alaska’s tax cuts are failing our state. Oil’s promise: increased state revenue, more jobs and bigger PFD’s. Alaska’s reality: less revenue, fewer jobs and shrinking PFD’s. So far, over $36 billion from Alaska’s savings is forever gone. Our state continues to decline because of the trickle-down fairytale. Alaska must reverse its failed tax cut experiment.

Stop believing in trickle-down. Tax cuts do not pay for themselves. Trickle-down tax cuts are a painful path to poverty.

Joe Paskvan is a lifelong Alaskan and retired attorney. He served in the Alaska State Senate from 2008 to 2012, including a year as co-chair of the Senate Resources committee. He lives in Fairbanks.

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