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Anders Zerlang
Professor Sotirakopulus
English 1102
7 October 2015
The Trickle-Down Effect
Trickle-down economic policies have long been criticized by the left and strongly
supported by the right in the political spectrum. But what exactly is trickle-down
economics? Plainly put, trickle-down economics is the theory that providing economic
benefits (mainly tax cuts), to those with upper-level incomes will ultimately benefit
society as a whole and trickle down to the middle and lower classes. Ever since former
President Ronald Reagan signed the Economic Recovery Tax Act (ERTA) in 1981,
trickle-down policies have become more prevalent in the United States. Using results
from studies conducted by the Organization for Economic Cooperation and Development
(OECD) and the International Monetary Fund (IMF), I will provide useful data, graphs,
and statistics to reveal the effects that trickle-down policies have had on the United
States. Along with these studies, I will also voice the opinions of leading economists
including Robert Reich and Paul Krugman. I will incorporate these valid sources to
reveal how these policies have contributed to the dwindling of the middle class, the
increase in wealth and income inequality, and the decline of social mobility in the United
States.
When President Reagan took office in 1981 the top marginal tax rate in the U.S.
was 70 percent. Just two years after he left office in 1991, that percentage dropped all the
way down to 31 percent. Ever since then, the top marginal tax rate has hovered in the mid

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30s. Supporters of trickle-down economics argue that by decreasing marginal and capital
gains tax rates- especially for corporations, investors and entrepreneurs- production will
expand and the economy will grow- resulting in an expanding middle class. However,
history has shown us that this is not the case. According to a study conducted by The
OECD in 2011 titled Divided We Stand: Why Inequality Keeps Rising, the income
share of just the top one half of the top 1 percent grew from 5.39 percent of the nations
income in 1979 to 13.37 percent in 2010. On the other hand, over this same period the
share of the bottom 90 fell from 67.65 percent to 53.74 percent. Income and wealth
inequality have drastically increased since these policies were enacted. Trickle-down
economic policies have also failed to achieve what they were set in place to accomplishexpand the middle class and grow the economy.
However, inequality is not always a bad thing. In the IMF report titled Causes
and Consequences of Income Inequality: A Global Perspective, the authors argue that
some degree of inequality in an economy is necessary as it provides the incentives for
people to excel, compete, save, and invest to move ahead in life (6). Yes, some degree of
inequality is a good thing, as it is the sign of a competitive, productive economy;
however, the current levels of inequality in the United States are at extreme levels and are
a concern to most leading economists, including Robert Reich- former Secretary of Labor
under President Bill Clinton. In his documentary called Inequality For All Reich argues
that the middle class and the poor are the job creators, not the people at the top. Reich
says this because the middle class and the poor are the biggest consumer groups in the
country. And, since the U.S. economy is heavily reliant on consumer spending, the

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middle and lower classes are what keep the economy stimulated. In contrast, trickle-down
proponents claim that the very wealthy are the job creators.
Although the left and right do not agree on every subject matter, they would both
agree on the fact that the best thing for the economy is a striving middle class. This was
the case in the decades between 1947-1977 in the United States- known as The Great
Prosperity. During this time, the top 1 percent held a much smaller percentage of the
countrys income and the middle class had
much greater purchasing power- resulting
in a booming economy. During this period
the government gave workers more
bargaining power, provided social
insurance, and expanded public
investment. As a result the portion of
total income that went to the middle class
grew while the portion going to the top declined. But this was a zero-sum game. As the
economy grew almost everyone came out ahead, including those at the top (Reich 1).
So, what exactly does this prove? This proves that trickle-up policies have a proven
track record of success while trickle-down policies have a proven track record of
shrinking the middle class and increasing inequality. This also proves that contrary to
popular belief, a striving middle class can also benefit those at the top.
Even leading economist and distinguished professor of economics at The
Graduate Center of the City University of New York, Paul Krugman is concerned with
the level of inequality. In his article titled Inequality Is a Drag published by The New

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York Times, Krugman argues that extreme inequality deprives many people of the
opportunity to fulfill their potential. He states:
Do talented children in low-income American families have the same
chance to make use of their talent to get the right education, to pursue the
right career path as those born higher up the ladder? Of course not.
Moreover, this isnt just unfair, its expensive. Extreme inequality means a
waste of human resources.
Ever since 1980, social mobility has become less attainable for the average American.
During the decades of The Great Prosperity a low-income child had a much greater
chance of having his/her hard work pay off. Now a day, we are seeing a trend where the
rich get richer while the poor get poorer.
Although proponents of trickle-down theories believe that these theories are best
for the economy, sometimes economic policies just do not work out the way they were
intended to. This paper was intended to give some insight as to how trickle-down
economic polices have contributed to the decline of the middle class, the increase in
wealth and income inequality, and the decrease of social mobility. Hopefully the United
States can once again become a country where hard work pays off and social mobility is
attainable for everyone, regardless of social class.

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Works Cited
Dabla-Norris, Era, Kalpana Kochar, Nujin Suphaphiphat, Frantisek Ricka, and Evridiki
Tsounta. Causes and Consequences of Income Inequality a Global Perspective.
Washington, D.C.: International Monetary Fund, 2015. Print.
Inequality For All. Dir. Jacob Kornbluth. Perf. Robert Reich, Lily Tomlin, John Stewart.
Radius-TWC, 2013. Film.
Krugman, Paul. "Inequality Is a Drag." The New York Times. The New York Times, 07
Aug. 2014. Web. 01 Oct. 2015.
Reich, Robert. "The Truth About the American Economy." Web log post. N.p., 30 May
2011. Web. 30 Sept. 2015.
Divided We Stand: Why Inequality Keeps Rising. " Social Policies and Data. OECD, Dec.
2011. Web. 03 Oct. 2015.