40 Finance Monthly. Economics 101 should encourage businesses to invest, which would, in theory, increase wealth. Another outcome would be that the wealthy would invest in businesses, creating new jobs and more income for those employed. If the wealth is invested in new companies, it will create new jobs and increase the incomes of those employed. As a result of the above-referenced spending and investment, it is theorised that this would stimulate economic activity, which in turn would increase tax revenues through more income tax due to the increased jobs or higher VAT due to increased spending. These higher tax revenues could then fund public programmes such as healthcare, education, and welfare payments to the poorer in society instead of, the higher taxation that limits the richest in our society from investing. Does trickle-down economics work? This is mostly subjective and down to which side of the economic spectrum you lean on. It has both its pros and its cons, and essentially, as with most things in life, it would depend on how you would be personally affected. There are examples of trickle-down economics in practice. Famously, President Ronald Reagan and his “Reagonomics” became a beacon to those who believed in trickledown economics when he passed two tax reform bills in the 1980s which brought tax down for higher earners from 73 percent to 28 percent, as well as reducing corporation tax from 46 percent to 40 percent. It is argued that as a result of this, the USA came out of recession in the 1980s Ronald Reagan Picture by: Michael Evans, National Archives Via PingNews “PRESIDENT RONALD REAGAN AND HIS “REAGONOMICS” BECAME A BEACON TO THOSE WHO BELIEVED IN TRICKLE-DOWN ECONOMICS WHEN HE PASSED TWO TAX REFORM BILLS IN THE 1980S” and is lauded as an example of trickle-down economics working. However, this paints only a small picture of that time, as in addition to reducing taxes, government spending increased by 2.5 percent a year, and federal debt in the USA tripled. Therefore, it is argued by its detractors that trickledown economics in its purest form wasn’t ever implemented fully, and it could have been the increased government spending that, in fact, ended the recession. There are further examples of this theory being put into practice, such as President Herbert Hoover’s Great Depression stimulus after the crash in 1929, Prime Minister Margaret Thatcher’s policies in the 1980s, and President George Bush’s Tax Cuts in 2001. So the theory has been tested, though some would
RkJQdWJsaXNoZXIy Mjk3Mzkz