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bolwerk's avatar

How low do taxes need to be before trickle down begins to work?

Asked by bolwerk (10305points) July 23rd, 2012

As you may have heard, the super-rich have squirreled away $21 trillion – described as more than the economy of the USA and Japan combined – in tax havens. Had taxes been higher, some of that might have gone to needed spending or at least paying down the deficit. As it stands now, it’s just sitting in accounts accumulating.

Under the trickle down “theory,” how low will taxes need to be before it starts being spent?

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14 Answers

Strauss's avatar

The trickle-down theory has been disproven. Over the past 30 years Reaganomics (and the associated de-regulation) has provided us not with the prosperity that was envisioned, but the worst economy since the Great Depression. It is interesting that the term “trickle down” was used by Will Rogers in the St. Petersburg Times – Nov 26, 1932

The money was all appropriated for the top in the hopes that it would trickle down to the needy. Mr. Hoover didn’t know that money trickled up. Give it to the people at the bottom and the people at the top will have it before night, anyhow. But it will at least have passed through the poor fellow’s hands.

marinelife's avatar

Trickle down doesn’t work. It was an invention of the rich.

ETpro's avatar

It kicks in when we drop taxes below Zero. A negative 100% top marginal rate would mean we tax only the poor and send checks to the 1 precenters for an amount matching what they earned in taxable income. That would put trickle down right where the rich meant it to be.

CWOTUS's avatar

I would seriously doubt any story that said that trillions of dollars were “squirreled away in accounts, accumulating”. That is not what people do with large amounts of money.

bolwerk's avatar

@CWOTUS: if it’s not accumulating, at least compounding at a low rate of interest, these are the dumbest super-rich ever.

Jenniehowell's avatar

Trickle down is a myth – the same people that preach about trickle down & helping out the rich thru taxes are the same people who preach about how anything that helps the poor is a wasteful govt program. The only time the preach differently is on Sundays & somehow they trick themselves into believing that the poor they should help on Sundays must fall into a particular religious category in order to qualify for the help. Trickle down is crap – and coincidentally crap DOES trickle downhill.

There’s plenty to show that when money is made for those at the top it doesn’t trickle down much at all (aside from
failed attempts to keep low
level employees within a cost of living margin). Even worse during times that are considered bad economically the companies that manage to turn even bigger profits than before still lay off workers & require those they keep to pull up the slack.

Trickle down has never assisted those who need it in any way even close to the level in which they needed it & when compared with the money that stayed at the top it’s purely a joke.

@CWOTUS if money is shown to be in a tax haven then you can bet it is also accumulating. Like @bolwerk said they’d have to be the dumbest super rich ever to not do things to increase their money further. The whole point of a tax haven is to save/increase money. Who would think that kazillions in a tax haven would be sitting in a non-interest bearing account? Doesn’t make sense.

CWOTUS's avatar

Do you guys know anything at all about money? It doesn’t “sit” in offshore accounts doing nothing. People with the kind of wealth that you’re talking about here don’t get that wealth by being stupid, for the most part.

bolwerk's avatar

@CWOTUS: Yes, it doesn’t sit offshore doing nothing. It sits offshore accumulating, either through investments or interest payments from the bank on top of whatever other payments are going in. Do you know anything at all about money?

gondwanalon's avatar

You can call it anything you want but a 20% flat tax system would likely yield quite positive economic action. However that wouldn’t stick it to all of those eeeeeevil capitalistic rich people would it.

Jenniehowell's avatar

@CWOTUS I believe you were the one who said you seriously doubted it would be sitting anywhere accumulating. According to your statement “that is not what people do with large amounts of money”

I believe that is precisely what @bolwerk was saying – those with money make sure it is in situations where it will accumulate and in scenarios that money is in a tax haven of some sort you can bet it is accumulating. Money in a tax haven that is accumulating fits exactly the quote you were trying to refute when you said “that is not what people do with large amounts of money” hence the replies from us regarding the questioning of the logic of someone who would think that when someone puts kazillions in a tax haven that accumulating in interest bearing accounts is “not what people do with large amounts of money”

CWOTUS's avatar

I can’t even begin to parse what you’ve just said, @Jenniehowell. Rather let me say that large sums of money are generally “parked” in offshore accounts (or any “account”, at all, really) as a very temporary stopgap measure until it “does” something else. That is, money is used to invest and make more money through the purchase of capital equipment and property. It doesn’t sit for long term in stagnant accounts.

bolwerk's avatar

@CWOTUS: Does $21T sound temporary to you? And if you want to use it as a stopgap measure, why the hell would you take it offshore?

And to go back to the topic of this question, even if it’s invested in property and capital, it’s not trickling down.

funkdaddy's avatar

At the risk of being labeled an attempted mind reader.

@CWOTUS, are you considering investment accounts not sitting there while possibly others are? There’s no question a huge sum of money is under management by the large investment firms. This might be the crux of the debate you guys are having.

Technically it’s invested AND just sitting there, so it possibly meets everyone’s definition here.

Investment in material goods, equipment and property is much more active and tends to carry higher risks. I think people have less problem with business investing in the things they need to keep running, growing, and hopefully hiring.

Additional sources:

BlackRock reports $3.5 trillion alone
Fidelity reporting AUM
Goldman Sachs
Morgan Stanley

As far as trickle down, I don’t think the theory is completely broken, it could work but it seems to assume that there is a food chain for money and everyone is just looking up at those that make more than they do.

In reality we’re all feeding each other, I buy groceries, but also real estate, utilities, and computers. Hopefully someone buys my services so I can keep doing so. In the end it seems every dollar spent is the same.

bkcunningham's avatar

@CWOTUS, some tax experts like the UK government advisor David Whiting are very skeptical of the report from The Tax Justice Network’s James Henry, The Price of Offshore Revisited.

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