As Ronald Reagan was being sworn in, I took up a post at my campus paper, the University of Kentucky Kernel, as its editorial editor. That meant that I wrote some of the editorials, many of which were political. And the installation of a new US president certainly offered plenty to work with.
Almost immediately, via his OMB director David Stockman, Reagan began dismantling 40 years of economic policy in the country that had given birth to the middle class and sustained it throughout my family’s existence. He did this by advocating, along with Congressional Republicans, a “Trickle-Down” theory of economics.
The American middle class of my childhood had been the work of moderate Republican Dwight Eisenhower, who had – out of the shadow of Franklin Roosevelt’s New Deal – led the country from a decimated economic dystopia into a thriving, productive landscape of opportunity and innovation. He did this by moving a few simple levers: requiring corporations and the wealthy to contribute to the public treasury in honest proportion, and putting in place regulations to prevent them from exploiting the economy in ways that harmed the public.
But he did something else that seldom gets discussed, when the subjects of those Eisenhower years and the middle class and high taxes on the wealthy come up: he created a taxation system that rewarded corporations for putting their profits into business expansion, investment in their work forces and host communities, scientific and technological innovation, and infrastructure, by correspondingly lowering their taxes. This was called Eisenhower’s Middle Way.
And after decades of this system, Reagan came along and dismantled it, with the aid of Congressional Republicans, slashing taxes on corporations and the wealthy while simultaneously fostering a legislative culture of deregulation.
Stockman explained the move endlessly in the media in 1981: If taxes are greatly reduced on corporations and the wealthy, he argued publicly, that money will ‘trickle down’ to the general public through increased capital investment – new jobs, business expansion, etc. ‘Trickle-Down’ Theory (also called ‘Supply-Side Economics) became the justification for the abandonment of Eisenhower’s middle-class initiatives, which had created the world I grew up in.
We’ll return to that in a moment. For now, let’s flash-forward to our current issue: the astonishing resurgence of Trickle-Down rhetoric from our current Republican Congress.
“Current-day Republicans oppose taxes, claiming they redistribute wealth from hardworking people to those who want a handout,” wrote academic historian Heather Cox Richardson in her column, by way of explanation. “They believe that cutting taxes to enable those at the top to accumulate wealth will enable them to invest their money in businesses, creating more jobs. Wealth will trickle down, and everyone will do better.”
Where have I heard that before?
In fact, over the past 40 years, the lost revenue from breaks given to corporations and the wealthy – made even greater by Donald Trump and his red Congress in 2017 – have never trickled down to the middle class or anyone else. That money has vanished from the economy, disbursed to the wealthy and used to pay for endless stock buy-backs.
And the Reagan Trickle-Down wasn’t the first. This had happened before; Trickle-Down Theory/Supply-Side Economics were in place in the 1920s, and fueled the collapse of the US economy that led to the Great Depression. And in 1893, triggering the Banking Panics of the Gilded Age.
We see a cycle here, when we take the long view: the corporations and the wealthy promote their own self-interest by rigging the system, leading to a meltdown, and then a progressive administration sets the ship right by reimposing oversight and fairness. The corporations and the wealthy respond to this by promoting their own self-interest and rigging the system, etc., etc.
In college, writing editorials, I happened to be standing at just such a transition.
“By the 1970s, in an uncanny echo of the 1890s and the 1920s, Republican economists had embraced the old idea that only deregulation and unfettered capitalism would create wealth, which would then trickle down to everyone,” Richardson wrote, emphasizing the historical cycle.
Now it’s happening again, 40 years later, in the news today. President Joe Biden has aggressively moved to restore the American middle class, with an “upward-and-outward" plan for economic growth – restoring the checks and balances on corporate machinations that Republicans have been steadily chipping away, making taxes fair again, cracking down on high-end tax cheating, while bringing key industries (electronics) home to the US to create new jobs and secure US innovation, alongside programs to shore up US public infrastructure. That’s a Roosevelt-Eisenhower move.
“It’s a stark contrast to our Republican friends, who are doubling down on the same failed politics of the past,” Biden has said. “Top-down, trickle-down economics is not much trickle down to most kitchen tables in America.”
As it plays out today, and as it played out when I was a Kernel editor, this is an endless ideological volley that will never die.
But here’s what gets me...
This is the simplest thing in the world to explain. Under Eisenhower’s Middle Way, corporations and uber-wealthy citizens had a choice: they could pay taxes proportionate to their economic magnitude, or they could invest that money in expansion, new jobs, infrastructure, community well-being, and research. Needless to say, both the corporations and the uber-wealthy plowed their profits into those investments, to drastically lower their tax bills and at least get some growth out of it.
But what this amounts to is – that money was trickling down. That redirected tax revenue, diverted directly back into the economy and (by extension) the middle class, was doing exactly what the Trickle-Downers claimed it would do if the economy shifted to “demand side”.
We already had Trickle-Down. The Trickle-Downers were trying to reverse Trickle-Down, in appealing to Trickle-Down. But the Trickle-Down was demand-side, not supply-side.
David Stockman himself let this slip in an interview in the Eighties. “I mean, [Reagan's 1981 tax cut] was always a Trojan horse to bring down the top [corporate tax] rate,” he admitted, to the chagrin of his boss. “It's kind of hard to sell ‘trickle down.'’ So the supply-side formula was the only way to get a tax policy that was really ‘trickle down.’ Supply-side is ‘trickle-down theory.”
This admission set off a firestorm that forced Stockman out of the OMB in the long run, and the press was all over it. But the Republican seizure of tax policy prevailed, and the middle class has been eroding ever since, while corporations and the wealthy are now enjoying obscene exploitations of an economy that is increasingly precarious for the middle class that drives it. One need look no further than the crisis of 2008 to see where that exploitation bottoms out.
I’m not a 19-year-old college student anymore, and I know a lot more about what was going on the time and how we got there – and, of course, what’s happening now and how we got to now. But any 19-year-old is able to understand the simple moving part above: corporate America and the wealthy will invest only in themselves, unless given a reason not to. And when they don’t, they weaken the ground under all our feet.
Eisenhower gave them a reason. Biden is giving them a reason. Let’s get on board with that reason.
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