Deficit
spending and trickle down:
Ronald Reagan came up with this
idea that if you give rich people more money, they'll spend it. That spending
spree will then trickle down to the working classes thus stimulating the economy
and creating greater wealth for everyone. There was only one problem with this
idea... rich people spend what they want to spend when they want to spend it.
For example, if you give a multi-millionaire a $5,000 tax refund, they're not
going out tomorrow to make sure it trickles down. If a multi-millionaire wants a
60-foot boat, he buys a 60-foot boat. If they want an $80,000 Mercedes, they buy
that as well. In other words, they are not going out looking for a place to
spend that additional loot in order to contribute to the economy. Now, if you
were to give five middle class people one thousand dollars each, that money
might go into a new roof or a family vacation or a deposit on a new car or
something that actually would contribute to a stronger economy.
Since this means didn't realize
the end President Reagan envisioned, and since this tax break for millionaires
created a giant budget deficit, President Reagan understood that there was a
necessity to raise taxes, and he did.
Now, fast forward to 2001.
President George W. Bush puts through the largest tax break in this nation's
history. This tax break, like President Reagan's before his, also targeted top
wage earners. Additionally, this tax break caused the largest budget deficit in
United States History, nearing one-half trillion dollars ($500,000,000,000 -
that's a lot of zero's).
Guess what? The tax break didn't
work. The money didn't trickle down. The deficit didn't shrink. The poor stayed
poor, the rich got richer and the middle-class paid the bill. The rich bought
the same large boats. The rich bought the same expensive new cars. The rich eat
at the same fancy restaurants. They didn't say things like "Wow! Now I can
fix my roof." or "Gee. Now I can afford that vacation." They were
going anyway. However, unlike President Reagan, George W. Bush failed to see the
need to fix the budget deficit. In fact, President Bush figured the only way to
boost the economy and lower the deficit was to give another giant tax break to
the rich.
Business people realize that you need to spend money to make money. Business people also realize that once investing in a failed venture and losing money, they probably shouldn't re-invest in that same venture again. If the milk is sour, don't put it back in the refrigerator and hope it gets better. It won't.