Trickle-down economics reliably works
The claim that tax cuts for high earners reliably generate broad economic growth lacks empirical support. A major LSE study of 18 advanced economies over 50 years found tax cuts for the wealthy had no significant effect on GDP or unemployment but increased income inequality.
What we know
Supply-side economics, often called 'trickle-down' by critics, holds that tax cuts for high earners and corporations stimulate investment, job creation, and ultimately broad economic growth. The theory predicts that reduced marginal rates free capital for productive investment that creates jobs and raises wages across income levels.
A 2020 London School of Economics study by Hope and Limberg examined 50 years of data from 18 advanced economies and found that major tax cuts for the wealthy had effects on GDP and unemployment 'statistically indistinguishable from zero' while consistently increasing income inequality. They found this held across different countries, time periods, and policy contexts. This study was published in the peer-reviewed journal Socio-Economic Review.
Historical data comparison by United for a Fair Economy found near-zero correlation (0.03) between top marginal income tax rates and GDP growth in the United States from 1945 to 2010. Years with the highest growth included periods with a 91% top marginal rate (1950s). However, some economists dispute these analyses, arguing that tax cuts interact with other policy changes and that attributing macroeconomic outcomes to a single tax variable is methodologically challenging. The World Economic Forum summarized the Hope-Limberg findings as suggesting the theory 'just doesn't work' while noting the debate continues in economic literature.
Common claims
- Tax cuts for the wealthy reliably create jobs for everyoneNot supported. LSE research over 50 years in 18 countries found no significant effect on GDP or unemployment.
- The Reagan tax cuts proved trickle-down economics worksContested. Economic growth in the 1980s coincided with other factors including oil price drops and loose monetary policy after 1982.
- High top marginal tax rates always damage economic growthNot supported. U.S. economic data shows no consistent correlation between top tax rates and GDP growth over seven decades.