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The Contender
Con (against)
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Trickle-down/Supply-side economics is a failed system

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Voting Style: Open Point System: 7 Point
Started: 8/16/2015 Category: Politics
Updated: 1 year ago Status: Post Voting Period
Viewed: 1,137 times Debate No: 78715
Debate Rounds (4)
Comments (11)
Votes (5)




I will be arguing in this debate that trickle down economics (also known as supply-side or reaganomics) is a failed economic system and only results in the stagnation of wages for the working class, an intense growth in income inequality, and severe economic recessions among other things.


"Trickle-down economics", also referred to as "trickle-down theory", is the theory that economic benefits provided to upper income level earners will help society as a whole. In theory their extra wealth will be spent into the economy, providing wealth for lower income earners and creating jobs. This wealth in turn is spent back into the economy. The term originated in United States politics."

Round 1: Pro creates the debate -- Con presents his/her opening arguments.
Round 2: Pro rebuts Cons arguments, presents his own
Round 3: Further rebuttals
Round 4: Further rebuttals and closing statements

I look forward to a lively debate.


Gimme dat supply side.

The Pareto Principle

The Pareto Principle is frequently employed by economists to determine whether or not certain policies are considered good. The principle simply states that if a policy increases the wealth of one group with no negative effects on other groups, the policy was worthwhile [1]. This applies here for the simple reason that this debate is specifically about tax reductions for one group: the wealthy. Reducing their tax burden, which allows them to use their income as they see fit, increases their wellbeing. If we assume no negative consequences, the policy is deemed ‘good’. That, in and of itself, means that society as a whole improves, and trickle down theory fulfills the goal outlined in R1 to “help society as a whole.”

I assume that my opponent accepts the notion that decreasing taxes on the top of society would benefit those already at the top, or those who will eventually make it there. He must demonstrate, in order to win this debate, that tax cuts for the rich reduce the wealth of different parts of society or have enough negative consequences to outweigh the benefits given to the rich. My opponent must show on balance that these policies hurt as many (or more) people in some groups compared to the number of people benefited in other groups, or that the wealth lost in some groups is much larger than the wealth gained in others.

Income tax reductions increase economic growth, Income tax increases reduce economic growth

A country with no taxation would have problems offering goods and services--like a social safety net, infrastructure, education, and national defense--and is not desirable. It does not follow, however, that excessively high taxes on the wealthy or any group of people is desirable. Once said goods are being provided, excessively taxing the wealthy would have negative effects.

It should be noted that the impact of taxes is pretty straightforward in theory: if you increase the cost of something, you get less of it. It is as simple as that. In the world of soft drinks, a 10% increase in the cost of a soda decreases consumption about 8%, making the elasticity around 0.7-0.8 [2]. The same should occur when we increase the cost of being wealthy--activities that they do, like investment or saving, would decrease if the marginal returns fell due to increased costs through taxation.

Taxation has been demonstrated to affect human behavior as described above. Increasing the cost of activities--like work--decrease the amount that people partake in such an activity. A tax increase that decreases wages by 10% decreases labor force participation by 36% [3]. There is no reason this effect would significantly differ between wealthy businessmen or hardworking middle class earners; those in the top echelon of society in many ways work longer and harder than those in the lower classes [4]. Decreasing the returns for that work would disincentivize those activities and not only make them worse off, but reduce productivity, economic growth, and harm everyone.

N. Gregory Mankiw of Harvard University backs this up with anecdotal evidence: himself. He admits that he can afford to pay extra taxes, and that it wouldn’t make him go broke. “Paying an extra few percent in taxes wouldn’t create a lot of hardship,” he writes. But there is a caveat: an increase in his taxes would reduce the amount he is willing to work as the returns for that work would decrease significantly. “Suppose that some editor offered me $1,000 to write an article. If there were no taxes of any kind, this $1,000 of income would translate into $1,000 in extra saving. If I invested it in the stock of a company that earned, say, 8 percent a year on its capital, then 30 years from now, when I pass on, my children would inherit about $10,000. That is simply the miracle of compounding. With taxes, it yields only $1,000. … without the tax increases advocated by the Obama administration, the numbers would look quite different. I would face a lower income tax rate, a lower Medicare tax rate, and no deduction phaseout or estate tax. Taking that writing assignment would yield my kids about $2,000. I would have twice the incentive to keep working.” [6] This personal story merely demonstrates how taxes can negatively affect the economy and wealthy individuals without necessarily making them go broke. Mankiw can afford higher taxes, but if his taxes are increased or decreased, the incentives to produce change dramatically.

One of the best studies testing this theory has been done by President Obama’s own advisers--Christina and David Romer. They find that for every one percent increase in the marginal tax rate, growth decreases 1-3%, and that lower taxation fosters economic expansion [5]. Another study by John Gruber and Emmanuel Saez--Saez tends to oppose tax cuts--finds that high income earners are actually more responsive to taxes than those with low incomes [7]. Taxing the wealthy has a disproportionately negative effect on economic growth.

Research on austerity is an important place to look to see whether or not income tax hikes or cuts are good for economic growth. IMF research, praised by liberal economist Paul Krugman [8], has demonstrated that tax increases are detrimental for economic growth. The research [9] provides an interesting graphic on the relative differences between reducing debt-to-GDP ratios through tax hikes versus spending cuts. Neither are pretty, but the former is significantly worse. This analysis confirms the theory that taxes influence behavior, and that tax changes can positively or negatively affect economic growth. Both private consumption and GDP are affected by tax changes.

This is a similar conclusion to that reached in Gemmel et al., “taxes have more damaging effects on growth than deficits so that simultaneously reducing the latter and raising these taxes is bad for growth in net terms.”[10] Research by both the Ways and Means Committee and the Mercatus center confirm the findings above--tax increases are bad, tax cuts increase growth [11][12]. To quote the congressional report, “[t]his report finds that these higher marginal tax rates result in a smaller economy, fewer jobs, less investment, and lower wages.”

Tax progressivity is another way to determine whether or not tax changes at the top will affect overall economic preformance. One study found that “tax progressivity has a strong negative effect on the annual growth rate of real gross state product.”[20] The results can be seen below (X axis = progressivity).

Corporate tax reductions increase growth

The corporate tax burden falls on the shoulders of the workers, despite being geared towards the wealthy. According to the CBO, as much as 70% of the corporate tax burden trickles down to the worker via wage reductions and price increases [13]. The National Bureau of Economic Research corroborates this, finding that 56% of the corporate tax burden falls upon the backs of the workers [14]. Reducing the corporate tax rate would translate into higher earnings, more spending, and more economic growth.

Indeed, research focusing only on the growth effects, and not just the distributional impacts, agrees with ‘trickle down’ theory. A 1% shift of revenues from income taxes and corporate taxes to consumption taxes--which are seen as ‘regressive’--increase growth by 0.25-1% [15]. OECD economist Jens Arnold argues that corporate taxes “have the most negative effect on GDP per capita.”[16] Economists Young Lee and Roger Gordon, using a dataset with 70 countries and a timespan of 27 years, have found that a ten percent cut in the corporate tax rate would increase economic growth by one to two percent [17].

On top of all of this, the revenue maximizing point of the corporate tax is around 26% [18]. The current corporate tax rate is 39.1%, much higher than the revenue maximizing point of 26% [19]. If we were to reduce the corporate tax to 26%, using Lee and Gordon’s numbers, we would increase growth by 1.31-2.61%, and increase revenue to boot!


High income and corporate taxes disincentivize beneficial behavior by making it more costly to perform said behavior. By reducing the returns for work and investment, you reduce those kinds of activity. In the case of the corporate tax, you directly harm the worker by causing the company to reduce wages in order to make up for the higher cost of doing business inside this country. Reducing both income and corporate tax rates would increase economic growth and increase wages, making the economic pie larger. Further, using the philosophical Pareto principle, unless my opponent can demonstrate tangible harm (through wage depressant or another form of malice) from reducing taxes on the wealthy, we are forced to support the negative in this situation as society would ‘benefit’ by default.




















Debate Round No. 1


R1: Income tax reductions increase economic growth, Income tax increases reduce economic growth

Con claims that income tax reductions increase economic growth, while income tax increases reduce economic growth. This is true -- but this is not what trickle-down does. Trickle-down economics instead reduces the marginal income tax for the highest earners. [1] There is no evidence to suggest that trickle-down economics increases economic growth for the majority, as can be seen by the following graphs:

"Overall, data from the past 50 years strongly refutes any arguments that cutting taxes for the richest Americans will improve the economic standing of the lower and middle classes or the nation as a whole." [2]

R2: Corporate tax reductions increase growth

Con claims that corporate tax reductions increase growth. Again, he confuses the issue - as tax reductions for the whole are quite different from tax reductions for the few wealthy. There is no dispute that cutting taxes for the average worker will bring economic benefits. The debate at hand, however, is whether or not economic benefits given specifically to the wealthy, as outlined in my 1st round definition of trickle-down economics, helps the economy as a whole. The answer is no.

"A 2012 study by the Tax Justice Network indicates that wealth of the super-rich does not trickle down to improve the economy, but tends to be amassed and sheltered in tax havens with a negative effect on the tax bases of the home economy." [3]

"A 2015 report by the International Monetary Fund found that increasing the income share of the poor and the middle class actually increases growth while a rising income share of the top 20 percent results in lower growth—that is, when the rich get richer, benefits do not trickle down." [4]

My Arguments Against Trickle Down

C1: Trickle-down economics does not lead to increased growth

A recent study published by the International Monetary Fund (IMF) has concluded that, contrary to the principles of “trickle-down” economics, an increase in the income share of the wealthiest people actually leads to a decrease in GDP growth. [5] "A 1% increase in the income share of the bottom quintile results in a 0.38% increase in GDP. Meanwhile, a 1% increase in the income share of the top 20% results in a 0.08% decrease in GDP growth." History has shown us that reducing the tax burden on the wealthy has no correlation to overall GDP growth [6]:

C2: Trickle-down economics leads to severe income inequality

The highest-earning 20 percent of Americans have been making more and more over the past 40 years. Over the same 40 years, the lowest-earning 60 percent of Americans have been making less and less. [7]


Ever since the implementation of reaganomics, deregulation and massive tax cuts for the wealthy, income inequality has increased tremendously and only seems to be getting worse. "A new study of income inequality in developed nations, published by the National Bureau of Economic Research, shows that the more top tax rates are cut, the greater the share of national income that is mopped up by the wealthiest citizens." [8]


"Slashing top tax rates has had none of the positive effects on economic growth that the supply-side economists promised us, the NBER paper points out. Instead, it has just worsened income inequality." [9]

C3: Trickle-down economics leads to economic recessions

The growth of income inequality in the United States under trickle-down policies can only be described, as economist Robert Reich has stated, a suspension bridge [10]:

We see the starting reality that, as income inequality increases, economic instability increases. Both in 1928 and 2007, when the economy was hit with severe recessions, income inequality was at a record high. As with any laissez faire economic system, the economy endures boom-bust cycles [11] - and this is exactly what happens under trickle-down economics.

C4: Trickle-down economics doesn't even trickle down

As the evidence I've included above supports, there is no evidence to suggest that economic benefits given to the wealthiest seriously help those in lower income brackets. "Researchers found that when the top earners in society make more money, it actually slows down economic growth. On the other hand, when poorer people earn more, society as a whole benefits." [12] Additionally, as I've stated above, "a 2012 study by the Tax Justice Network indicates that wealth of the super-rich does nottrickle down to improve the economy, but tends to be amassed and sheltered in tax havens with a negative effect on the tax bases of the home economy."

"When the Republicans passed the Bush tax cuts in 2003, they promised massive economic growth. The notion that cutting taxes for the rich would "lift all boats" turned out to be sheer fantasy. The Bush years were the first period in modern American economic history to experience zero private sector job growth -- zero." [13] Under trickle down economics, we have not seen anything trickle down. Even worse, the lives of those unlucky unwealthy have gotten worse, as real U.S. wages have stagnated and fallen in recent decades [14]:


The evidence is pretty plain to see: whatever you want to call it, trickle-down, supply-side, or reaganomics, it does not nor has it ever worked. The effects of reducing the tax burden on the wealthy and deregulating the private sector does not lead to increased growth for the majority of people, drastically exacerbates the issue of income inequality, leads to "boom-bust" cycles commonly seen in laissez-faire capitilalism, and all in all, doesn't even trickle-down. Under the "Pareto Principle," so kindly defined by my opponent, it seems obvious that this system cannot be defined as "good" for anyone other than the richest and wealthiest of society. The overwhelming body of economic evidence supports the fact that trickle-down economics is not morally nor economically sustainable, and is a failed system.

















Income taxes and economic growth

a) The graphs cited do not have a control variable. As the economy has many confounding factors affecting growth or contraction, it is necessary to control for other variables. The economy in the 1950s is far different from what it is today; indeed, as the rest of the world was torn apart by WWII, America was the only power left able to supply goods to the rest of the world. As these variables are not accounted for, my opponent’s data is weak at best.

b) My opponent charts marginal tax rates, but not effective tax rates. Effective tax rates tell us a lot more because it is what people actually pay to the government. The tax code used to have many more loopholes 20, 30, and 40 years ago than it does today. If we look at effective tax rates, the progressivity (i.e. how much the rich pay) has not significantly changed between the 1960s and 2004 [1]. Effective income tax rates have stayed the same, not fallen, like my opponent assumes.

c) The graphs assume that marginal tax rates apply to the same number of people, at any given time, at any given income bracket; but the cutoff for who pays the top rate has changed significantly over time. In the 1950s, a person making $3 million (in today’s currency) would pay the marginal tax rate [1]. In 2014, those who pay the top tax rate of make $400,000 dollars a year [2], much less than the $3 million one would have to make 65 years ago. As the top tax rate affects many more people now than it did 60 years ago, any economic effects would be larger today than they used to be (as more people will experience behavior-changing tax changes).

Corporate taxes and growth

I did not clarify my position well enough and my opponent seems to think that I was arguing for reducing middle class taxes (which I am all for, by the way). The argument was not that we should cut middle class taxes, but that the corporate tax in effect harms workers. By increasing the cost of doing business, the wealthy put the cost onto the worker by reducing their pay in order to reduce labor costs. By reducing corporate taxes, you help the poor by increasing their wages. According to the research I posted last round, 56-70% of the corporate tax burden falls upon the worker.My opponent cites a study by the Tax Justice Network and claims that reducing taxes would only benefit the rich. Under Pareto's principle, that is not a bad thing--as long as it benefits some people, without harming others, the policy change is beneficial. As noted, both the CBO has demonstrated that it is the poor who is harmed by excessively high corporate taxes. Reducing them would, in turn, increase their income.

The Tax Justice Network seems to assume that corporate taxes only affect the wealthy, when nonpartisan organizations have already disproved this notion. The Tax Foundation argues, “for every one dollar increase in state and local corporate tax revenues, wages can be expected to fall by roughly 2.5 dollars.”[3] Research by Fehr et al. further backs up my claims. They argue that eliminating the corporate tax to zero would produce rapid and dramatic increases in U.S. domestic investment, output, real wages, and national saving. The authors also touch upon the distributional aspects, noting, “[abolishing the corporate tax would] produc[e] welfare gains for all U.S. cohorts.”[4]

R: Taxes and growth

My opponent’s evidence here suffers from the same flaws as the data used in his rebuttals. It does not use effective marginal tax rates, does not account for the fact that modern marginal tax rates affect many more people than they did in the past (making their macroeconomic effects much larger), and does not control for other factors that affect economic growth. Taxes have a powerful effect on growth, but it is not the only factor--monetary policy, spending policy, regulatory policy, and what is happening in foreign markets are all extremely important. If we simply compare taxes and growth, we shouldn’t get any correlation because of these other, more important, factors! This does not mean taxes have no effect--the evidence that controls for these variables proves this.

One good proxy to control for this is to look at smaller areas, like the states. Using tax revenues as a proxy for effective tax rates, we can see that higher taxes correlate with lower growth, and lower taxes correlate with higher growth [5]. The following data excludes severance taxes (from oil) and growth related to the oil industry.

Tax revenue (proxy for tax burden -- does not include severance taxes) coupled with GSP growth (does not include growth from the oil and gas industry). Correlation suggests that 40% of the differences in growth of the states are tied to taxes; states with lower taxes have more growth.

The Tax Foundation has reviewed the burgeoning literature and concluded that a “[p]ro-growth tax reform that reduces the burden of corporate and personal income taxes would generate a more robust economic recovery and put the U.S. on a higher growth trajectory, with more investment, more employment, higher wages, and a higher standard of living.”"[19] One of the studies they cited found that a 1% cut in the marginal tax rate increased GDP per capita by 0.5% the following year.

R: Income inequality

a) This debate needn’t occur in a vacuum. Indeed, I can propose other policies to mitigate the distributional effects while the positive growth effects of taxes continue to thrive. Expanding EITC alongside tax cuts would help combat the inequality effects while not hindering the economic growth effects of taxes [6].

b) Inequality is not inherently bad. The IMF study my opponent touted earlier relies upon data from developing countries. The Center for American Progress, a liberal think tank, offers caution when interpreting these results as demonstrating that inequality is bad for growth. They write, “the literature [on inequality] focuses mostly on the experience of developing countries, and its applicability to the challenges currently facing the United States [and other developed countries] is not entirely clear.”"[7] As developing countries differ from the United States and other countries in very significant ways, it is foolish to assume that what happens in the third world is applicable in our advanced economy. IMF economists who have reviewed the literature concur with the Center for American Progress, saying that existing research has “data and methodological issues [which make them too] imprecise to deliver definitive answers to this old and central question in economics research.”[8] Some research finds that in developed nations, inequality increases growth. A study looking at 12 developed countries has found that an increase in the share of top income is associated with increased GDP growth [9]. The following graphs come from a Manhattan Institute Study [10]. They seem to show the same thing: inequality has a positive effect on growth.

The reason for the discrepancy is simple. In developing countries, the wealthy are often rich because of corruption--which harms economic growth. In developed countries, the wealthy tend to be wealthy because they produce items that make everyone better off. This conclusion is backed by a study by the Institute for the Study of Labor, noting that inequality’s effect on growth is not significant when corruption is accounted for [11].

R: Instability

Academic research has concluded the opposite: increasing the progressivity of a tax code, causes recessions. Increasing progressivity dramatically changes the expectations of consumers and investors, which leads to more volatility. This is the opposite of what my opponent is arguing. UCR economists have found that “raising the tax progressivity may destabilize an endogenously growing economy by generating fuctuations driven by agents changing non-fundamental expectations.”"[12]

Taxes began being reduced in the 60s. I will look at the number of recessions since 1900 through today, so there are about 60 years on either side (60 before, 65 after). There were 14 recessions in the 60 years preceding the major tax reductions started by Kennedy. There have only been 7 recessions since then [13]. The statistics show no real correlation between taxation and recessions--if anything, they confirm the research cited above showing that taxing the rich increase volatility.

Reducing taxes on the wealthy is unlikely to increase the number of recessions.

R: Stable incomes

a) Looking only at wages/earnings is misleading. You have to look at total compensation. Total compensation takes into account benefits, like health insurance. Even if one’s wages stay the same, if an employer begins paying for health insurance, your standard of living will increase because your cost of living falls. This, in effect, is a wage increase; but we would never see this using my opponent’s data. When total compensation is looked at, wages have actually increased 77% since 1973 [14]. The effect of total compensation can be seen below [14][20].

b) Looking at households over individuals tells us a different story. Looking only at income, an individual has only seen a 3.2% increase in their income since 1979. This seems to support my opponent’s position--but look closer. If you measure households instead, the increase since 1979 is 12.5%. If you take into account government transfers, that rises to 15.2%. If you take into account middle class tax cuts that came with the tax cuts for the rich, income growth was 20.2%. If you adjust for household size, the number is 29%. Accounting for employer paid health care plans, income for the average family rose 36.7% [15]. That is a significant increase.

c) The claim that the rich have gotten richer while the poor have gotten poorer (or stagnated) has also been researched in academia. Richard Burkhauser has found that the income for the middle 5th quintile has risen by 1/3 between 1979 and 2007 [16]. The CBO, when accounting for benefits, has found that incomes for the middle class have risen 45% since 1980 [17].

d) Mobility is high. 58% of those at the bottom rose to a higher income bracket between 1996 and 2005, and 50% of those in the second poorest bracket moved up in that time frame [18].

Debate Round No. 2


IndependentTruth forfeited this round.


Rubio 2016
Debate Round No. 3


IndependentTruth forfeited this round.


I win. Vote Con.
Debate Round No. 4
11 comments have been posted on this debate. Showing 1 through 10 records.
Posted by InsertAliasHere 1 year ago
I guess Con's rebuttal was so good that Pro felt the need to deactivate.

*sad face*
Posted by 16kadams 1 year ago
VOT: why :p
Posted by 16kadams 1 year ago
i didn't. I had a formatting issue
Posted by The-Voice-of-Truth 1 year ago
Ermuhgerd, here comes the headache.
Posted by tejretics 1 year ago
@16k - Why did you stop using Google Docs?
Posted by lannan13 1 year ago
Someone PM me when this debate is over. Love it so far.
Posted by tejretics 1 year ago
Fun read.
Posted by 16kadams 1 year ago
Forgot source 20.

Posted by 16kadams 1 year ago
screw it I'm accepting
Posted by 16kadams 1 year ago
I would accept this if the definition was shortened to this:

The theory that reducing the tax rate on the wealthy would benefit the economy as a whole
5 votes have been placed for this debate. Showing 1 through 5 records.
Vote Placed by Contra 1 year ago
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Reasons for voting decision: Pro forfeited two rounds. Con's arguments were pretty persuasive and his rebuttals were even more so.
Vote Placed by ResponsiblyIrresponsible 1 year ago
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Reasons for voting decision: FF, and thus all relevant points to CON.
Vote Placed by 2-D 1 year ago
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Reasons for voting decision: Dammit... I'll still look forward to reading more thoroughly but Pro forfeited the last couple rounds dropping arguments and conduct.
Vote Placed by dsjpk5 1 year ago
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Reasons for voting decision: Pro ff many times, so conduct to Con.
Vote Placed by ColeTrain 1 year ago
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Reasons for voting decision: FF