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From the abstract: > We find tax cuts for the rich lead to higher income inequality in both the short- and medium-term. In contrast, such reforms do not have a

From the abstract: > We find tax cuts for the rich lead to higher income inequality in both the short- and medium-term. In contrast, such reforms do not have any significant effect on economic growth or unemployment. Our results therefore provide strong evidence against the influential political–economic idea that tax cuts for the rich ‘trickle down’ to boost the wider economy. I'd be interested in hearing from those who consider this a surprising result. To me it seems entirely expected, but with online echo-chambers being what they are I have no doubt my lack of surprise could just mean I'm in an informational cul-de-sac.

aemreunal 5y ago
I don't think this is surprising either. The whole "trickle-down economics" arguments for such tax cuts have always sounded... bullshit (for lack of a better word), exacerbated by the fact that decades of it (since the Reagan era in the US, for example) has only served to make the rich richer, poor poorer and erode the middle class completely. If it was a brilliant idea (i.e. the idea that the the only thing holding back the rich from elevating everyone else from poverty were those pesky low 10s of percent taxes) that worked, everyone would've been favor of it and we would've eliminated taxes for the rich completely by now. It's always good to have scientific data and analysis confirm your intuition, though.
- wang_li 5y ago
  The poor are not getting poorer and the middle class is becoming rich. In the US anyway. Fundamentally the problem is that people think that someone having more money than then is some kind of ethical issue. Not to mention something like 100% of these analyses are univariate and that makes no sense at all since it's perfectly rational that a 20 year old has much less wealth and income than a 60 year old with an advanced degree and 40 years of work experience. We could just as easily be outraged that some people have more life expectancy than other people. Seems unfair that a person who is 60 and has 15-20 years of life left has to work 40 hours per week to maintain their lifestyle which is exactly the same amount of hours a 20 year-old who has 55-70 years remaining expects to work in a week.
  - deleted 5y ago
    [deleted]
  - readthenotes1 5y ago
    Citations? (I recall reading an article claiming this is what happened to the middle class about a decade ago, but I don't remember where or how trustworthy. It's hard to reconcile with the real lack of increase in real wages.)
deltarholamda 5y ago
In the distant--but not too distant--past, "the rich" often meant business owners who might make a lot of money, but employed a lot of people. The idea of cutting taxes would mean more available capital for business expansion. It's not really the case so much anymore. A decent Silicon Valley salary would put you in the top 10% of earners, and a Python programmer doesn't usually hire a lot of people. Top 1%ers tend to be of the financial rent-seeking sort, who might hire some people, but they're not expanding the concrete pylon plant to another state or anything like that, which would expand middle class wages and/or employment. The gutting of the industrial base since Reagan cut high tax rates for the top earners demonstrates that things don't always work out how you expect.
- lostcolony 5y ago
  Business investments have always been a deductible expense. The idea that by saving rich people money, they would invest it in their business, is obviously bullshit; they can just invest the money and not be taxed on it anyway. It's doubly bullshit given that businesses are also separate taxable entities. Don't take the money out of the business if you don't want it to be taxed as income; invest it back in so it becomes an expense, and neither you nor the business (effectively) pay taxes on it. So, no. Even with a solid industrial base, "trickle down economics" was still just as obviously bullshit.
commandlinefan 5y ago
> any significant effect on economic growth or unemployment Do high taxes have any significant effect on economic growth or unemployment?
AnthonyMouse 5y ago
> I'd be interested in hearing from those who consider this a surprising result. To me it seems entirely expected, but with online echo-chambers being what they are I have no doubt my lack of surprise could just mean I'm in an informational cul-de-sac. What people think causes wealth inequality: Low tax rates on higher income people. What actually causes wealth inequality: Corporate mergers, consolidation, lack of antitrust enforcement. When does Zuckerberg have more wealth? When Facebook has a 900 billion dollar market cap and he pays a 70% tax rate, or when Facebook has a ten billion dollar market cap and he pays a 30% tax rate? (Hint: 30% of 900 billion is a lot more than 70% of ten billion. Also, he doesn't pay the tax until he sells anyway, which he doesn't.) The problem with all of these studies is that people think the top tax rates were significantly reduced during Reagan, which is around the same time we stopped enforcing antitrust, so they see the effect of the latter and ascribe it to the former. But we can distinguish them because the first one never actually happened. The nominal tax rates decreased a lot during Reagan, but that's because it coincided with the closure of a ton of tax loopholes that meant that high income people never actually paid those rates. Government revenues as a percent of GDP have basically been flat since the end of WWII and are about the same now as they were under Kennedy and LBJ: https://fred.stlouisfed.org/series/FYFRGDA188S https://fred.stlouisfed.org/series/FYFRGDA188S So any study that purports to use this to show what happens when you "lower taxes" faces the trouble that the tax lowering never really happened in practice.
- edmcnulty101 5y ago
  That's very interesting. We just hear 'tax cuts for the rich' and just get angry about the privileged not paying their fair share. 'Tax cuts for the Rich' has become kind of a buzzword phrase, like defund the police or climate change. it sounds totally obvious on an emotional level but the devil is in the details.
  - AnthonyMouse 5y ago
    It's actually worse than that because we have a tax code that actively promotes corporate expansion. If you're Walmart and you're making money and you've got a billion dollars in after-tax profit, what do you do with it? You could reinvest the money in the company. Open more Walmarts. Then you have a billion dollars to invest. You could pay it out as dividends to the shareholders. Then the shareholders, they're investors, they go invest in something else. Somebody goes out and builds more Walmart competitors. But dividends are income, even if you reinvest them. So if Walmart keeps the money and uses it to build more Walmarts, they get a billion dollars. If they pay the money out to the investors to invest in something else, and there is a 15% tax rate on dividends, there is only $850M to invest in the competitors. That's a huge disadvantage for the competitors, which induces the shareholders to prefer to invest in building more Walmarts. Now guess what happens to that incentive if you raise the tax rate on dividends to 25%. We could fix this by making dividends a tax deduction to the corporation. Right now Walmart makes a dollar, they pay corporate tax on it, then if they reinvest it themselves, no more tax. If they pay it as a dividend, it's taxed again before it can be reinvested in anything else. If the dividend was a deduction to the corporation, it would be taxed either to the corporation or to the shareholder, but not both as it is now -- and so there would be no preference for keeping the money inside the corporation and increasing its size. This sounds like "tax cut for corporations / rich people" but it's really just doing away with the tax penalty for removing money from a corporation to invest it in a different one. Which is the thing that reduces wealth inequality.
InTheArena 5y ago
I feel like this is a straw man arguement - There is a presupposition that the only purpose of tax-cuts here is trickle down effects. There is also a concern of increasing inequality. Modern Inequality is _not_ driven by tax rate. The tax system in the USA is a income tax (the only thing authorized in the constitution). What folks here have created is wealth that is relatively il-liquid. What has changed is that interest rates are low enough that the wealthy have used loans against their stock to generate revenue. This is also because of the government working to keep interest rates artificially low. On the flip side, the poor in America pay virtually no federal income tax, and rarely state income once tax credits and rates are worked in. So who would increasing the tax rate hurt? The middle class - upper middle class in particular. They don't have the capacity to do investment backed loans to circumvent income tax, nor do they qualify for reduced tax rates (often zero at a federal tax level) for poorer Americans. I suspect the point where tax rates for the rich matters sailed a long time ago. It was effective in some places, ineffectual in some other places. It certainly was part of the financial breakthrough in the 1980s, but had other problems. So instead, a more basic question - what is a fair level of taxation given equal protection clauses in the USA? and also given that we don't want to disincentivize people working to better their own financial situation.
- s1artibartfast 5y ago
  Thank you! If you want to focus on inequality and the lavish spending of the rich look at a progressive sales tax, value-added taxes, inheritance taxes, and progressive capital gain. That is a hyper rich have unrealized wealth, whereas the middle class relies on income. If the hyper wealthy get a 0% loan on assets to make a purchase, there is still a sale which is a taxable event

aemreunal 5y ago

I don't think this is surprising either. The whole "trickle-down economics" arguments for such tax cuts have always sounded... bullshit (for lack of a better word), exacerbated by the fact that decades of it (since the Reagan era in the US, for example) has only served to make the rich richer, poor poorer and erode the middle class completely. If it was a brilliant idea (i.e. the idea that the the only thing holding back the rich from elevating everyone else from poverty were those pesky low 10s of percent taxes) that worked, everyone would've been favor of it and we would've eliminated taxes for the rich completely by now. It's always good to have scientific data and analysis confirm your intuition, though.

wang_li 5y ago
The poor are not getting poorer and the middle class is becoming rich. In the US anyway. Fundamentally the problem is that people think that someone having more money than then is some kind of ethical issue. Not to mention something like 100% of these analyses are univariate and that makes no sense at all since it's perfectly rational that a 20 year old has much less wealth and income than a 60 year old with an advanced degree and 40 years of work experience. We could just as easily be outraged that some people have more life expectancy than other people. Seems unfair that a person who is 60 and has 15-20 years of life left has to work 40 hours per week to maintain their lifestyle which is exactly the same amount of hours a 20 year-old who has 55-70 years remaining expects to work in a week.
- deleted 5y ago
  [deleted]
- readthenotes1 5y ago
  Citations? (I recall reading an article claiming this is what happened to the middle class about a decade ago, but I don't remember where or how trustworthy. It's hard to reconcile with the real lack of increase in real wages.)

deltarholamda 5y ago

In the distant--but not too distant--past, "the rich" often meant business owners who might make a lot of money, but employed a lot of people. The idea of cutting taxes would mean more available capital for business expansion. It's not really the case so much anymore. A decent Silicon Valley salary would put you in the top 10% of earners, and a Python programmer doesn't usually hire a lot of people. Top 1%ers tend to be of the financial rent-seeking sort, who might hire some people, but they're not expanding the concrete pylon plant to another state or anything like that, which would expand middle class wages and/or employment. The gutting of the industrial base since Reagan cut high tax rates for the top earners demonstrates that things don't always work out how you expect.

lostcolony 5y ago
Business investments have always been a deductible expense. The idea that by saving rich people money, they would invest it in their business, is obviously bullshit; they can just invest the money and not be taxed on it anyway. It's doubly bullshit given that businesses are also separate taxable entities. Don't take the money out of the business if you don't want it to be taxed as income; invest it back in so it becomes an expense, and neither you nor the business (effectively) pay taxes on it. So, no. Even with a solid industrial base, "trickle down economics" was still just as obviously bullshit.

commandlinefan 5y ago

> any significant effect on economic growth or unemployment Do high taxes have any significant effect on economic growth or unemployment?

AnthonyMouse 5y ago

> I'd be interested in hearing from those who consider this a surprising result. To me it seems entirely expected, but with online echo-chambers being what they are I have no doubt my lack of surprise could just mean I'm in an informational cul-de-sac. What people think causes wealth inequality: Low tax rates on higher income people. What actually causes wealth inequality: Corporate mergers, consolidation, lack of antitrust enforcement. When does Zuckerberg have more wealth? When Facebook has a 900 billion dollar market cap and he pays a 70% tax rate, or when Facebook has a ten billion dollar market cap and he pays a 30% tax rate? (Hint: 30% of 900 billion is a lot more than 70% of ten billion. Also, he doesn't pay the tax until he sells anyway, which he doesn't.) The problem with all of these studies is that people think the top tax rates were significantly reduced during Reagan, which is around the same time we stopped enforcing antitrust, so they see the effect of the latter and ascribe it to the former. But we can distinguish them because the first one never actually happened. The nominal tax rates decreased a lot during Reagan, but that's because it coincided with the closure of a ton of tax loopholes that meant that high income people never actually paid those rates. Government revenues as a percent of GDP have basically been flat since the end of WWII and are about the same now as they were under Kennedy and LBJ: https://fred.stlouisfed.org/series/FYFRGDA188S https://fred.stlouisfed.org/series/FYFRGDA188S So any study that purports to use this to show what happens when you "lower taxes" faces the trouble that the tax lowering never really happened in practice.

edmcnulty101 5y ago
That's very interesting. We just hear 'tax cuts for the rich' and just get angry about the privileged not paying their fair share. 'Tax cuts for the Rich' has become kind of a buzzword phrase, like defund the police or climate change. it sounds totally obvious on an emotional level but the devil is in the details.
- AnthonyMouse 5y ago
  It's actually worse than that because we have a tax code that actively promotes corporate expansion. If you're Walmart and you're making money and you've got a billion dollars in after-tax profit, what do you do with it? You could reinvest the money in the company. Open more Walmarts. Then you have a billion dollars to invest. You could pay it out as dividends to the shareholders. Then the shareholders, they're investors, they go invest in something else. Somebody goes out and builds more Walmart competitors. But dividends are income, even if you reinvest them. So if Walmart keeps the money and uses it to build more Walmarts, they get a billion dollars. If they pay the money out to the investors to invest in something else, and there is a 15% tax rate on dividends, there is only $850M to invest in the competitors. That's a huge disadvantage for the competitors, which induces the shareholders to prefer to invest in building more Walmarts. Now guess what happens to that incentive if you raise the tax rate on dividends to 25%. We could fix this by making dividends a tax deduction to the corporation. Right now Walmart makes a dollar, they pay corporate tax on it, then if they reinvest it themselves, no more tax. If they pay it as a dividend, it's taxed again before it can be reinvested in anything else. If the dividend was a deduction to the corporation, it would be taxed either to the corporation or to the shareholder, but not both as it is now -- and so there would be no preference for keeping the money inside the corporation and increasing its size. This sounds like "tax cut for corporations / rich people" but it's really just doing away with the tax penalty for removing money from a corporation to invest it in a different one. Which is the thing that reduces wealth inequality.

InTheArena 5y ago

I feel like this is a straw man arguement - There is a presupposition that the only purpose of tax-cuts here is trickle down effects. There is also a concern of increasing inequality. Modern Inequality is _not_ driven by tax rate. The tax system in the USA is a income tax (the only thing authorized in the constitution). What folks here have created is wealth that is relatively il-liquid. What has changed is that interest rates are low enough that the wealthy have used loans against their stock to generate revenue. This is also because of the government working to keep interest rates artificially low. On the flip side, the poor in America pay virtually no federal income tax, and rarely state income once tax credits and rates are worked in. So who would increasing the tax rate hurt? The middle class - upper middle class in particular. They don't have the capacity to do investment backed loans to circumvent income tax, nor do they qualify for reduced tax rates (often zero at a federal tax level) for poorer Americans. I suspect the point where tax rates for the rich matters sailed a long time ago. It was effective in some places, ineffectual in some other places. It certainly was part of the financial breakthrough in the 1980s, but had other problems. So instead, a more basic question - what is a fair level of taxation given equal protection clauses in the USA? and also given that we don't want to disincentivize people working to better their own financial situation.

s1artibartfast 5y ago
Thank you! If you want to focus on inequality and the lavish spending of the rich look at a progressive sales tax, value-added taxes, inheritance taxes, and progressive capital gain. That is a hyper rich have unrealized wealth, whereas the middle class relies on income. If the hyper wealthy get a 0% loan on assets to make a purchase, there is still a sale which is a taxable event