Trickle-Down Economics Has Never Actually Worked

SITUATION:

For four decades, tax cuts for top earners and corporations have been sold to conservative voters as a growth engine. The theory goes something like this: let job creators keep more of their income, and they will invest it, expand payrolls, and raise wages for everyone below them.

Ronald Reagan built his economic agenda around this idea in 1981. The 2017 Tax Cuts and Jobs Act under President Trump followed a similar model at the federal level, cutting the corporate tax rate from 35 percent to 21 percent on the promise that the savings would flow to workers.

Kansas ran the clearest version of this experiment at the state level. In 2012, Republican Governor Sam Brownback signed a package of income tax cuts that eliminated taxes entirely on more than 300,000 small business owners and slashed individual rates. Brownback called it a “real live experiment” and predicted it would deliver a “shot of adrenaline” to the state economy.

THE TRUTH:

The Kansas numbers did not move the way the theory predicted. From January 2014 through April 2017, the state added only 28,000 net new jobs. Neighboring Nebraska, with a smaller labor force, added 35,000 in the same stretch. Kansas growth ran behind both its neighbors and the national average for the life of the policy.

What did move was the budget. The tax cuts blew a hole in state revenue that widened every year. By 2017 the projected shortfall reached roughly $900 million over two years. Kansas drained its highway fund to cover the gap, cut funding to schools and universities, and watched its bond rating fall.

In June 2017, Republican supermajorities in both chambers of the Kansas legislature voted to override Brownback’s own veto and repeal most of the cuts. This was not an opposition party correcting a Democratic governor. It was Brownback’s own party concluding, on the numbers in front of them, that the experiment had been a spectactular failure.

The 2017 federal tax law produced a similar pattern at much larger scale. Corporate after-tax profits rose, and payouts to shareholders through dividends and buybacks jumped by roughly 18 percent. Stock buybacks hit a record $1 trillion in 2018. One-time worker bonuses that companies announced after the cut averaged $28 per worker nationally, a microscopic fraction of the total benefit corporations received. Estimates from academic research since found that most of the income gains from the law went to the top 10 percent of income earners, with typical workers seeing little measurable change in pay.

Some economists still defend elements of the theory despite the overwhelming evidence against it. Arthur Laffer, whose work inspired the Kansas plan, later argued the state’s cuts were too small relative to its economy to count as a real test. Others point out that the 2017 federal cut did coincide with a modest rise in business investment. Those arguments deserve consideration. But neither Kansas nor the federal experience produced the broad wage and job gains that were promised at the time each cut was sold to the public.

In fact, an LSE/King’s College study of 18 OECD countries spanning 50 years found no growth or employment benefit from tax cuts on the rich, just more inequality. Essentially, trickle-down economics has never worked.

WHY IT MATTERS:

Conservative voters have every reason to want policies that grow the economy and raise wages, and skepticism of government overreach is a reasonable, defensible position. The problem is that trickle-down was marketed as the vehicle for both, and in its two clearest American test cases, it has not delivered.

Kansas is the sharper example because the accountability was immediate and irrefutable. A Republican governor made a specific, public prediction. A Republican legislature watched the results for four years, then voted to reverse course rather than defend a theory the state’s own budget numbers had already discredited.

This does not settle every argument about the proper size of government or the ideal top tax rate. Those remain open, legitimate debates. But a movement that prizes facts over comfortable narratives should be willing to look at what happened in Topeka and Washington, D.C. and adjust the pitch accordingly, rather than repeat a promise the evidence has already tested and found wanting.

SOURCES:

• Tax Policy Center, “The Brownback Tax Cut Experiment Ends in Kansas,” 2017
• NPR, “The Kansas Tax Cut Experiment Comes to an End as Lawmakers Vote to Raise Taxes,” June 2017
• Center on Budget and Policy Priorities, “Kansas Provides Compelling Evidence of Failure of ‘Supply-Side’ Tax Cuts,” 2018
• Center on Budget and Policy Priorities, “Congress Should Revisit 2017 Tax Law’s Trillion-Dollar Corporate Rate Cut,” 2024
• UCLA Economics, “How a Historic Corporate Tax Cut Reshaped the U.S. Economy”
• Congressional Research Service, “Economic Effects of the Tax Cuts and Jobs Act,” via Congress.gov
• London School of Economics and King’s College London, “The Economic Consequences of Major Tax Cuts for the Rich” by David Hope and Julian Limberg, published in Socio-Economic Review (Oxford Academic), 2020