Monday, November 8, 2010

Trickle Down? More Like Trickle Out

There's political debate going on nationally and locally about repealing the Bush tax cuts from 2001 & 2003. Mostly, the debate centers around whether or not the taxes should be reinstated for those earning over $200K ($250K jointly) per year or not. Most seem to agree that they do not want to repeal the cut for folks making less than $200K.

One key argument for not taxing the rich is that rich people spend a lot of money buying things and that the manufacturers, sellers, and supply chain of those things all make money and stay employed as a result of the wealthy person's purchase. It's Reagan's trickle-down economics theory and it made sense in 1980 when most of what Americans bought was still manufactured right here in the USA.

But the manufacturing landscape has changed significantly since then. It's global now so when a wealthy person buys a new car they're not buying a Cadillac made in Detroit with American labor and American made parts. They're buying a BMW or Lexus that may or may not have been made in America. If it was made in America, the labor salary increase since 1980 has not kept up with the cost of living so the trickle down is barely a drip. And the supply chain for the car today mostly comes from Mexico or China or Malaysia so that money is really just trickling out of the American economy to others overseas.

By getting out of the manufacturing business the United States has caused a fundamental shift in the underpinnings of this economic theory.

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