Zombie Economics

There is an idea that should have died decades ago. Unfortunately, like a zombie from the film The Night of the Living Dead, it refuses to die. The idea is trickle-down economics. It's an idea that the Conservative Party of Canada keeps selling. Les Wittington writes:

As the next federal election draws nearer, Canadians will be hearing a continuing refrain from the Conservatives on the need for tax cuts to reduce the tax burden and help spur economic growth.

Party leader Pierre Poilievre is already playing this card, as has every leader of Canada’s main right-wing party going back 40 years. It was in the 1980s when so-called trickle-down economics—the notion that reduced taxes and benefits for corporations and the wealthy will trickle down and in time benefit everybody—took hold after being championed by United Kingdom prime minister Margaret Thatcher and American president Ronald Reagan.

And, amazingly, it is still prominent today. That’s the case despite the fact—as non-rich people in Canada, the United States, the U.K., and many other countries have witnessed for years—the idea has never worked.

The data has been gathered. Trickle Down doesn't work:

In a comprehensive study that attracted international attention, economists at the London School of Economics and Politics recently looked at this issue using data from 18 Organisation for Economic Co-operation and Development (OECD) countries from 1965 to 2015. Their report, entitled The Economic Consequences of Major Tax Cuts for the Rich, concludes that tax breaks of this kind across advanced economies have only helped one group: the rich. While the wealthy rack up bigger bank accounts, driving up income inequality, these tax reforms do nothing for the rest of the population because the measures have no significant effect on economic growth or unemployment, the analysts found.

Nevertheless, the bogus theory continues to be put into practice:

In the U.S., the highest marginal individual income tax rate has fallen more or less steadily from 70 per cent in 1980 to 37 per cent under former president Donald Trump’s 2017 tax revisions. In that event, the wealthiest five per cent of households received nearly half—42.6 per cent—of the Trump tax cuts, with the top 0.1 per cent receiving an average tax cut of $193,380 in 2018, the nonpartisan Tax Policy Center concluded.

And in the U.S., the statutory corporate income tax rate has gradually been reduced from more than 50 per cent in the 1950s to its current 21 per cent today. America’s wealthy didn’t need more help, but they got it anyway as this lower corporate tax rate disproportionately benefits the rich. As a result, in 2018, for the first time in a century, the 400 richest American families paid lower taxes than people in the middle class, according to economists at the University of California at Berkeley.

While all this has been going on in recent decades, average people were left far behind. The after-inflation hourly wage in recent years in the U.S. provides about the same purchasing power it had in 1978, according to the Pew Research Center. And, over the same period, the U.S. national debt has grown from $772-billion (or 33 per cent of GDP) to $30-trillion (or 123 per cent of GDP).

Reducing corporate income levies has been an international phenomenon fuelled by competitive policies. Between 1985 and 2019, the global average statutory corporate tax rate dropped from 49 per cent to 23 per cent, according to economists.

Canada has been part of this tax-cutting fixation. Since the 1960s, individual tax filers have been contributing an increasing share of the federal tax pie. More recently, the Jean Chrétien and Paul Martin governments and the Stephen Harper government cut the corporate rate cumulatively from 28 per cent to 15 per cent. By 2015, for every dollar corporations anted up in tax, Canadian individuals contributed $3.50.

Life is imitating art. We are living through our own Night of the Living Dead.

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