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

Gimme dat supply side. The Pareto Principle The Pareto Principle is frequently employed by economists to determine whether or not certain policies are considered good. The principle simply states that if a policy increases the wealth of one group with no negative effects on other groups, the policy was worthwhile [1]. This applies here for the simple reason that this debate is specifically about tax reductions for one group: the wealthy. Reducing their tax burden, which allows them to use their income as they see fit, increases their wellbeing. If we assume no negative consequences, the policy is deemed ‘good’. That, in and of itself, means that society as a whole improves, and trickle down theory fulfills the goal outlined in R1 to “help society as a whole.” I assume that my opponent accepts the notion that decreasing taxes on the top of society would benefit those already at the top, or those who will eventually make it there. He must demonstrate, in order to win this debate, that tax cuts for the rich reduce the wealth of different parts of society or have enough negative consequences to outweigh the benefits given to the rich. My opponent must show on balance that these policies hurt as many (or more) people in some groups compared to the number of people benefited in other groups, or that the wealth lost in some groups is much larger than the wealth gained in others. Income tax reductions increase economic growth, Income tax increases reduce economic growth A country with no taxation would have problems offering goods and services--like a social safety net, infrastructure, education, and national defense--and is not desirable. It does not follow, however, that excessively high taxes on the wealthy or any group of people is desirable. Once said goods are being provided, excessively taxing the wealthy would have negative effects. It should be noted that the impact of taxes is pretty straightforward in theory: if you increase the cost of something, you get less of it. It is as simple as that. In the world of soft drinks, a 10% increase in the cost of a soda decreases consumption about 8%, making the elasticity around 0.7-0.8 [2]. The same should occur when we increase the cost of being wealthy--activities that they do, like investment or saving, would decrease if the marginal returns fell due to increased costs through taxation. Taxation has been demonstrated to affect human behavior as described above. Increasing the cost of activities--like work--decrease the amount that people partake in such an activity. A tax increase that decreases wages by 10% decreases labor force participation by 36% [3]. There is no reason this effect would significantly differ between wealthy businessmen or hardworking middle class earners; those in the top echelon of society in many ways work longer and harder than those in the lower classes [4]. Decreasing the returns for that work would disincentivize those activities and not only make them worse off, but reduce productivity, economic growth, and harm everyone. N. Gregory Mankiw of Harvard University backs this up with anecdotal evidence: himself. He admits that he can afford to pay extra taxes, and that it wouldn’t make him go broke. “Paying an extra few percent in taxes wouldn’t create a lot of hardship,” he writes. But there is a caveat: an increase in his taxes would reduce the amount he is willing to work as the returns for that work would decrease significantly. “Suppose that some editor offered me $1,000 to write an article. If there were no taxes of any kind, this $1,000 of income would translate into $1,000 in extra saving. If I invested it in the stock of a company that earned, say, 8 percent a year on its capital, then 30 years from now, when I pass on, my children would inherit about $10,000. That is simply the miracle of compounding. With taxes, it yields only $1,000. … without the tax increases advocated by the Obama administration, the numbers would look quite different. I would face a lower income tax rate, a lower Medicare tax rate, and no deduction phaseout or estate tax. Taking that writing assignment would yield my kids about $2,000. I would have twice the incentive to keep working.” [6] This personal story merely demonstrates how taxes can negatively affect the economy and wealthy individuals without necessarily making them go broke. Mankiw can afford higher taxes, but if his taxes are increased or decreased, the incentives to produce change dramatically. One of the best studies testing this theory has been done by President Obama’s own advisers--Christina and David Romer. They find that for every one percent increase in the marginal tax rate, growth decreases 1-3%, and that lower taxation fosters economic expansion [5]. Another study by John Gruber and Emmanuel Saez--Saez tends to oppose tax cuts--finds that high income earners are actually more responsive to taxes than those with low incomes [7]. Taxing the wealthy has a disproportionately negative effect on economic growth. Research on austerity is an important place to look to see whether or not income tax hikes or cuts are good for economic growth. IMF research, praised by liberal economist Paul Krugman [8], has demonstrated that tax increases are detrimental for economic growth. The research [9] provides an interesting graphic on the relative differences between reducing debt-to-GDP ratios through tax hikes versus spending cuts. Neither are pretty, but the former is significantly worse. This analysis confirms the theory that taxes influence behavior, and that tax changes can positively or negatively affect economic growth. Both private consumption and GDP are affected by tax changes. This is a similar conclusion to that reached in Gemmel et al., “taxes have more damaging effects on growth than deficits so that simultaneously reducing the latter and raising these taxes is bad for growth in net terms.”[10] Research by both the Ways and Means Committee and the Mercatus center confirm the findings above--tax increases are bad, tax cuts increase growth [11][12]. To quote the congressional report, “[t]his report finds that these higher marginal tax rates result in a smaller economy, fewer jobs, less investment, and lower wages.”Tax progressivity is another way to determine whether or not tax changes at the top will affect overall economic preformance. One study found that “tax progressivity has a strong negative effect on the annual growth rate of real gross state product.”[20] The results can be seen below (X axis = progressivity). Corporate tax reductions increase growth The corporate tax burden falls on the shoulders of the workers, despite being geared towards the wealthy. According to the CBO, as much as 70% of the corporate tax burden trickles down to the worker via wage reductions and price increases [13]. The National Bureau of Economic Research corroborates this, finding that 56% of the corporate tax burden falls upon the backs of the workers [14]. Reducing the corporate tax rate would translate into higher earnings, more spending, and more economic growth. Indeed, research focusing only on the growth effects, and not just the distributional impacts, agrees with ‘trickle down’ theory. A 1% shift of revenues from income taxes and corporate taxes to consumption taxes--which are seen as ‘regressive’--increase growth by 0.25-1% [15]. OECD economist Jens Arnold argues that corporate taxes “have the most negative effect on GDP per capita.”[16] Economists Young Lee and Roger Gordon, using a dataset with 70 countries and a timespan of 27 years, have found that a ten percent cut in the corporate tax rate would increase economic growth by one to two percent [17]. On top of all of this, the revenue maximizing point of the corporate tax is around 26% [18]. The current corporate tax rate is 39.1%, much higher than the revenue maximizing point of 26% [19]. If we were to reduce the corporate tax to 26%, using Lee and Gordon’s numbers, we would increase growth by 1.31-2.61%, and increase revenue to boot! Conclusion High income and corporate taxes disincentivize beneficial behavior by making it more costly to perform said behavior. By reducing the returns for work and investment, you reduce those kinds of activity. In the case of the corporate tax, you directly harm the worker by causing the company to reduce wages in order to make up for the higher cost of doing business inside this country. Reducing both income and corporate tax rates would increase economic growth and increase wages, making the economic pie larger. Further, using the philosophical Pareto principle, unless my opponent can demonstrate tangible harm (through wage depressant or another form of malice) from reducing taxes on the wealthy, we are forced to support the negative in this situation as society would ‘benefit’ by default. 1. http://www.nber.org... 2. http://www.ncbi.nlm.nih.gov... 3. http://cepar.edu.au.tmp.anchor.net.au... 4. http://blogs.wsj.com... 5. http://tinyurl.com... 6. http://www.nytimes.com... 7. http://www.nber.org... 8. http://www.nytimes.com... 9. http://www.imf.org... 10. http://papers.ssrn.com... 11. http://tinyurl.com...; 12. http://mercatus.org... 13. https://www.cbo.gov... 14. http://www.nber.org... 15. http://www.oecd.org... 16. http://www.ecn.ulaval.ca... 17. https://www.sba.muohio.edu... 18. https://www.aei.org... 19. http://www.heritage.org...