January 19, 2015 /

Obama's Plan To Fix Trickle Down Economics

Obama is excepted to announce a new tax plan at Tuesday's State of the Union, meant to help out the struggling middle class. But when you look deeper into it, you see what is really going on.

Obama's Plan To Fix Trickle Down Economics

With less than 36 hours to go until President Obama delivers his second to last State of the Union address, some details have started leaking. One of those is a bold, new tax plan to help bolster the middle class through the closing of tax loopholes on the top earners, as well as increasing some of their taxes:

The price tag to the wealthiest Americans and those large financial institutions? According to senior White House officials it could be $320 billion over 10 years.

The president will propose raising the capital gains rate to 28 percent, up from 15 percent, which is the maximum most taxpayers pay now.

The president will also call for closing what the officials called “the single biggest loophole in our tax system today: … the trust fund loophole,” which allows portfolios and estates that increase in value to evade certain taxes when passed on to heirs.

Needless to say the right is already painting this as a “tax hike”, but with 2016 GOP hopefuls, like Mitt Romney, now making income inequality a central issue, they are having a lot of troubles fighting back. Why is that? Well as one White House official said:

“The middle class has yet to experience the prosperity shown in the recovery and what will be new on Tuesday night is the vision that he has for how we finish that job and how we ensure that the middle class can share in that prosperity”

And that right there is very true, but also lacking one key thing. Since the Bush tax cuts over a decade ago something really troubling has happened. Profits have continued to rise, while wages have dropped. The only exception to this was the collapse in 2008, which everyone felt. This graph explains this even better:

The Bush tax cuts were to push this failed trickle down theory, but as you see the notion of “the more money business has, the more money the workers get” has been a complete and utter failure. Instead the Gordon Gecko philosophy has taken over with the top business owners of “greed is good”. What they don’t realize is that Gordon Gecko is a fictional character in a fictional movie, and in the very real world we live in, greed is not good.

When companies stockpile cash, instead of passing it on to the people that helped them make it, the employees, then those vital parts of their success suffer. In turn that means other sectors of our economy suffer. People don’t have money, they can’t go out and eat. Now not only the restaurant struggles, but also the servers that depend on tips. In essence, this is the reality of trickle down, in that only the bad parts ever trickle down. The benefits stay nice and secure with the top earners.

So what President Obama is doing tomorrow night is basically saying “hey, we’ve given you a chance to make trickle down work, and it didn’t, so now we are going to become the mediators and make it work, through taxes”, which is about the only way the government can do it. Simply put, he is proposing to enforce the one tried and true theory of economics – a strong economy depends upon a strong middle class. That is one fact that has stood the test of time.

There’s also another side to this though that is really interesting, and not one many seem to be noticing. As I said earlier, the 2016 GOP hopefuls seem to be wanting to take control of the income inequality issue. While that covers things like women and minorities earning less than their white, male counterparts, it also addresses the stagnant wages Americans have been feeling for over ten years. Once this proposal becomes official tomorrow night, Republicans are going to have trouble explaining away how their ideals, which have been tried for years, are the way to go. Remember back in 2008, when candidate Obama suggested similar moves? The right attacked it as “redistribution of wealth”, but right now there is no distribution of wealth. Knowing that, Republicans have not tried to dust-off that old talking point and recycle it for this proposal. Instead they are doing limited attempts at word games, trying to push their same, failed policies we have experienced, and people don’t seem to be buying it this time. 

So will Republicans like Romney embrace Obama’s plan, or try to conjure up some other, reworded plan like they have always pushed? One of those could be a serious reduction in the payroll tax, but the government can’t just foot that bill without making up the money, unless the GOP wants to propose raising the deficit. The only viable option there is to eliminate social programs and raise taxes on the middle class. What use is it having more in wages, when Uncle Sam will just take it? So that idea will be one easy to debunk and I doubt the people will buy into it like they used to.

Tomorrow night is going to be a huge shot across the bow at the 2016 GOP hopefuls, and one they really don’t have any defense for. To really make it stick, I just hope Obama talks about the failure of trickle-down economics and how they have adversely affected 95% of the people in this country. Use the soapbox to push that message and force the GOP to counter it with more plans to keep the middle class stagnant. If that happens, then Democrats will retake control of the economic agenda, and Obama’s proposal will stand the best chance of passing a Republican controlled Congress.

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