Andy
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- Jan 6, 2008
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To sort out just what are the important causal factors would require a model of all the above factors in the economy - very difficult and subject to opinion. So the chart that I presented can only say that trickle down theory, (decreasingly progressive taxation) has not been proven to improve the economy. I cannot claim the stronger statement that the graph shows trickle-down is false.
Does everyone know what trickle down economics is? It is not a method of taxation. It was not supposed to be either. Granted Trickle-Down Economics, has become a reference to a supposed tax system, but in reality, it's simply a term describing how the economy works.
It's the basic idea that economic activity and wealth, flows from those with money, and trickles down all economic levels. This is inherently true in every economy the world over. Like Capitalism, Trickle-Down Economics is merely a way to describe how things naturally work.
This is very obvious when you ask yourself, who pays my wage? Is it a poor person? How many people here got a job from a homeless bum? The idea is ridiculous. A bum might offer to give you something to do, but he has no way to pay you. Unless you accept empty beer bottles as payment.
Of course all jobs are created by rich people. Even if you were to consider a self-employed person. The products you sell, or service you provide, are created by rich people. I met a wonderful girl who ran a web page design and service business out of her home. Even in this case, the internet, the computers, even the HTML language, and Foxfire plus other web browsers, all are created by rich people, without whom, her business would not exist.
This is all ambiguous Andy. How about some specifics?
Alrighty. Here's a couple of examples of tickle down economics at work.
In 1878 Henry Ford walked 7 miles to Detroit to look for a job. In 1899, backed by lumber baron William H. Murphy, Ford created Detroit Automobile Company. In 1902, the company was named the Cadillac Motor Company, after Ford left due to a management disputes. Later, Ford founded a new company with backing by the Dodge Brothers. The Dodge brothers later split off to create the Dodge motor car line.
What's the point? Rich people supplied Ford with the capital to start a car company, that later became Cadillac. Other rich people supplied the Capital to form the Ford Motor company. Rich people supplied the funds for the Dodge brothers to make their cars.
Then in turn all of those provided jobs for thousands of workers. Then they funded new companies like Autolite, Motorcraft, ACDelco, and so on, that also employ thousands of workers. Then they also supported the creation of dealerships and repair shops nation wide to sell and service these cars, also employing thousands of workers. The trickle down effect can be seen working through dozens of levels via a bunch of industries.
Or how about KFC, who was backed by rich people. Later Dave Thomas was financially backed after running a KFC, to open his own burger stand, Wendy's. Dave Thomas later backed Tim Hortons. This is trickle down at work. In each case, the rich people, invested into new business, resulting in new jobs and economic growth.
How about Apple computers, which started in a garage, but was invested in by rich people, who grew the company. Later after a management dispute, Steve Jobs gained backing by Ross Perot, which lead to NeXT Step company. This company was later purchased by Apple, and the resulting new technology from the purchase was used to make Ipods, the ITunes store which was the first widely available online MP3 purchasing system, the IMac, the IPhone, the first razor thin laptop. All of which created hundreds and thousands of jobs. Now to mention, Steve Jobs, with investors, built up Pixar, to create dozens of some of the most brilliantly funny computer animated films to date.
This is all trickle down economics at work. Today we even have an industry called Venture Capitalism, which specifically exists to find people to give financial backing to make new businesses, technologies and industries. Rich people give money to VC companies, who then back those they think are winners.
Now whether you agree with a tax structure based on this premise is irrelevant to the fact, it does actually work this way. Again, show me the guy earning a good wage working for a bum, and I will concede I am wrong. Nothing trickles up. It always trickles down.
Conclusion
Now, how does this apply to taxes? This does not support a regressive tax. Nor does it support a progressive tax. It support a low tax, or flat tax. Why? Because when you place high taxes on the rich, they can't invest in the economy. When you place high taxes on any other group, they can't buy products. In either case, taxes hinder economic activity. This is economics 101. When you increase the cost of doing X thing, the amount of X thing done, will decrease.
What would have happened if the rich in Henry Fords day, had been taxed out of having the cash to invest, in the name of being progressive? It's entirely possible the revolution of the affordable average American automobile, may have been delayed for dozens of years.
What if the public had been taxed out of affording Ford's automobile? The company may have folded and never turned a profit.
In either case, thousands of jobs would never, or been great delayed in their creation.
When taxes are specifically directed at the rich, ultimately the middle and lower class lose. The rich don't just accept a lose of income due to taxes. They instead take their earnings in stock options, or other un-taxable benefits. The problem here is, if the money is tied up in stocks, the rich can't invest into new companies, and new products, or new businesses. The result is, jobs that would be created, and new products that would be a benefit, are not.
This is exactly what JFK meant by his "Rising tide lifts all boats" speech.
This is Trickle-Down Economics. It's the way the world works, whether you agree to it or not. Be all means go work for a homeless guy, and prove me wrong. Good luck on that.