Trickle Down Mythology

It is the mantra of conservative ideology that reducing taxes for the wealthy means shared wealth by all.  The quaint name for this is Trickle Down Economics.  It’s simple.  If rich people are allowed to keep their money without tax obligation then they will use that money to invest in business, which translates into more money for which to hire new employees. More people have jobs so more people are making money and thus spend money, which puts more money into the hands of the rich, which means more money invested in jobs.  Sounds good, doesn’t it? But does it work?

Conservatives can give examples of the unemployment rate dropping with a decrease in taxes on the wealthy.  Liberals counter with examples of the opposite happening.  So who’s right.  Well let’s take a look at the social facts. The graph below compares the unemployment rate and the federal tax rate for the top bracket over the last thirty years.  The red columns highlights times that conservatives would rather forget, that is times when raising top bracket taxes corresponded with a decrease in unemployment, or the opposite situation where decreasing top bracket taxes corresponded with an increase in unemployment.  The green column is the conservative argument.  It is a wonderful example of lower taxes corresponding with lower unemployment.

But you will notice that most of the box is, in fact, yellow. This isolates times when the tax rates had nothing to do with the unemployment rate.

You will also notice that I used the term “correspond” rather than “correlate.” Well, I did run a correlation at a very modest .41.  Nothing to brag about.  Yes, there appears to be a positive correlation between taxing the wealthy and low unemployment. But the correlation isn’t very strong, and since so much of the graph is yellow (places where the correlation is mostly likely close to zero) and red (times when the correlation is most likely negative) it looks like there must be some other explanation for unemployment than the taxes paid by the wealthy.

Comparing Tax Rates and Unemployment

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