Trickle-down/Supply-side economics is a failed system

Income taxes and economic growth a) The graphs cited do not have a control variable. As the economy has many confounding factors affecting growth or contraction, it is necessary to control for other variables. The economy in the 1950s is far different from what it is today; indeed, as the rest of the world was torn apart by WWII, America was the only power left able to supply goods to the rest of the world. As these variables are not accounted for, my opponent’s data is weak at best. b) My opponent charts marginal tax rates, but not effective tax rates. Effective tax rates tell us a lot more because it is what people actually pay to the government. The tax code used to have many more loopholes 20, 30, and 40 years ago than it does today. If we look at effective tax rates, the progressivity (i.e. how much the rich pay) has not significantly changed between the 1960s and 2004 [1]. Effective income tax rates have stayed the same, not fallen, like my opponent assumes. c) The graphs assume that marginal tax rates apply to the same number of people, at any given time, at any given income bracket; but the cutoff for who pays the top rate has changed significantly over time. In the 1950s, a person making $3 million (in today’s currency) would pay the marginal tax rate [1]. In 2014, those who pay the top tax rate of make $400,000 dollars a year [2], much less than the $3 million one would have to make 65 years ago. As the top tax rate affects many more people now than it did 60 years ago, any economic effects would be larger today than they used to be (as more people will experience behavior-changing tax changes). Corporate taxes and growth I did not clarify my position well enough and my opponent seems to think that I was arguing for reducing middle class taxes (which I am all for, by the way). The argument was not that we should cut middle class taxes, but that the corporate tax in effect harms workers. By increasing the cost of doing business, the wealthy put the cost onto the worker by reducing their pay in order to reduce labor costs. By reducing corporate taxes, you help the poor by increasing their wages. According to the research I posted last round, 56-70% of the corporate tax burden falls upon the worker.My opponent cites a study by the Tax Justice Network and claims that reducing taxes would only benefit the rich. Under Pareto's principle, that is not a bad thing--as long as it benefits some people, without harming others, the policy change is beneficial. As noted, both the CBO has demonstrated that it is the poor who is harmed by excessively high corporate taxes. Reducing them would, in turn, increase their income. The Tax Justice Network seems to assume that corporate taxes only affect the wealthy, when nonpartisan organizations have already disproved this notion. The Tax Foundation argues, “for every one dollar increase in state and local corporate tax revenues, wages can be expected to fall by roughly 2.5 dollars.”[3] Research by Fehr et al. further backs up my claims. They argue that eliminating the corporate tax to zero would produce rapid and dramatic increases in U.S. domestic investment, output, real wages, and national saving. The authors also touch upon the distributional aspects, noting, “[abolishing the corporate tax would] produc[e] welfare gains for all U.S. cohorts.”[4] R: Taxes and growth My opponent’s evidence here suffers from the same flaws as the data used in his rebuttals. It does not use effective marginal tax rates, does not account for the fact that modern marginal tax rates affect many more people than they did in the past (making their macroeconomic effects much larger), and does not control for other factors that affect economic growth. Taxes have a powerful effect on growth, but it is not the only factor--monetary policy, spending policy, regulatory policy, and what is happening in foreign markets are all extremely important. If we simply compare taxes and growth, we shouldn’t get any correlation because of these other, more important, factors! This does not mean taxes have no effect--the evidence that controls for these variables proves this. One good proxy to control for this is to look at smaller areas, like the states. Using tax revenues as a proxy for effective tax rates, we can see that higher taxes correlate with lower growth, and lower taxes correlate with higher growth [5]. The following data excludes severance taxes (from oil) and growth related to the oil industry. The Tax Foundation has reviewed the burgeoning literature and concluded that a “[p]ro-growth tax reform that reduces the burden of corporate and personal income taxes would generate a more robust economic recovery and put the U.S. on a higher growth trajectory, with more investment, more employment, higher wages, and a higher standard of living.”"[19] One of the studies they cited found that a 1% cut in the marginal tax rate increased GDP per capita by 0.5% the following year. R: Income inequality a) This debate needn’t occur in a vacuum. Indeed, I can propose other policies to mitigate the distributional effects while the positive growth effects of taxes continue to thrive. Expanding EITC alongside tax cuts would help combat the inequality effects while not hindering the economic growth effects of taxes [6]. b) Inequality is not inherently bad. The IMF study my opponent touted earlier relies upon data from developing countries. The Center for American Progress, a liberal think tank, offers caution when interpreting these results as demonstrating that inequality is bad for growth. They write, “the literature [on inequality] focuses mostly on the experience of developing countries, and its applicability to the challenges currently facing the United States [and other developed countries] is not entirely clear.”"[7] As developing countries differ from the United States and other countries in very significant ways, it is foolish to assume that what happens in the third world is applicable in our advanced economy. IMF economists who have reviewed the literature concur with the Center for American Progress, saying that existing research has “data and methodological issues [which make them too] imprecise to deliver definitive answers to this old and central question in economics research.”[8] Some research finds that in developed nations, inequality increases growth. A study looking at 12 developed countries has found that an increase in the share of top income is associated with increased GDP growth [9]. The following graphs come from a Manhattan Institute Study [10]. They seem to show the same thing: inequality has a positive effect on growth. The reason for the discrepancy is simple. In developing countries, the wealthy are often rich because of corruption--which harms economic growth. In developed countries, the wealthy tend to be wealthy because they produce items that make everyone better off. This conclusion is backed by a study by the Institute for the Study of Labor, noting that inequality’s effect on growth is not significant when corruption is accounted for [11]. R: Instability Academic research has concluded the opposite: increasing the progressivity of a tax code, causes recessions. Increasing progressivity dramatically changes the expectations of consumers and investors, which leads to more volatility. This is the opposite of what my opponent is arguing. UCR economists have found that “raising the tax progressivity may destabilize an endogenously growing economy by generating fuctuations driven by agents changing non-fundamental expectations.”"[12] Taxes began being reduced in the 60s. I will look at the number of recessions since 1900 through today, so there are about 60 years on either side (60 before, 65 after). There were 14 recessions in the 60 years preceding the major tax reductions started by Kennedy. There have only been 7 recessions since then [13]. The statistics show no real correlation between taxation and recessions--if anything, they confirm the research cited above showing that taxing the rich increase volatility. Reducing taxes on the wealthy is unlikely to increase the number of recessions. R: Stable incomes a) Looking only at wages/earnings is misleading. You have to look at total compensation. Total compensation takes into account benefits, like health insurance. Even if one’s wages stay the same, if an employer begins paying for health insurance, your standard of living will increase because your cost of living falls. This, in effect, is a wage increase; but we would never see this using my opponent’s data. When total compensation is looked at, wages have actually increased 77% since 1973 [14]. The effect of total compensation can be seen below [14][20]. b) Looking at households over individuals tells us a different story. Looking only at income, an individual has only seen a 3.2% increase in their income since 1979. This seems to support my opponent’s position--but look closer. If you measure households instead, the increase since 1979 is 12.5%. If you take into account government transfers, that rises to 15.2%. If you take into account middle class tax cuts that came with the tax cuts for the rich, income growth was 20.2%. If you adjust for household size, the number is 29%. Accounting for employer paid health care plans, income for the average family rose 36.7% [15]. That is a significant increase. c) The claim that the rich have gotten richer while the poor have gotten poorer (or stagnated) has also been researched in academia. Richard Burkhauser has found that the income for the middle 5th quintile has risen by 1/3 between 1979 and 2007 [16]. The CBO, when accounting for benefits, has found that incomes for the middle class have risen 45% since 1980 [17]. d) Mobility is high. 58% of those at the bottom rose to a higher income bracket between 1996 and 2005, and 50% of those in the second poorest bracket moved up in that time frame [18]. http://www.debate.org...