Most Americans believe we should have widespread opportunity and prosperity, but many Americans are left behind while wage and wealth disparity increase. From fundamental principles we can understand how trickle-down economics does not work but how bottom-up economics does work to create the prosperous economy that works for us all.
Tax cuts on the wealthy and big business or trickle-down economics do not work to create long-term growth, wage increases and offsetting tax revenues from a sufficiently expanding economy as touted by Trump and the GOP.
Granted, it can seem pretty good for a while living it up on the credit cards until the bills come due. However, mostly the rich get richer, and the middle class and poor get left behind while driving up the national debt and not investing in what actually does pay back.
The GOP thinks these tax cuts will encourage businesses to hire and expand driving up wages and growing the economy. The problem with this argument is that wages and purchases are expenses to the businesses, which ultimately are at a 0 percent tax rate. A lower income-tax rate is an incentive to take money out of the company and not reinvest it in the company. That is why you see companies buying back stock and increase distributions to owners.
Growing the economy means speeding up money in the economy. More money for the wealthy slows money in the economy for two reasons:
- One is that if you have a lot of money, you do not want to lose it, so you invest carefully and slowly. You have the luxury of time to look at a lot of deals before deciding to invest or not.
- Another reason is that you tend to have few immediate needs. Again, you have the luxury of time to compare and purchase or not.
The wealthy and big business spend and invest money slowly not because they're bad; it's just human nature.
With trillions on the side, the wealthy and big business could have prevented the last recession or pulled us out at any time. But they are risk-averse. The wealthy and businesses hire and invest when they know there are customers with money. If we want these crucial Investments in our economy, we just need to create more customers with more money.
Businesses exist from opportunities created from three necessary conditions: customers with money, our Basic Public Investments (BPIs), and sufficient laws and regulations.