Trick down?


I found this answer on Quora and I’m curious the kind of reaction it might get here (and no, it’s not me).

The subject:

The GOP claims that the proposed tax cuts for the wealthy and for corporations will trickle down in the form of higher wages, jobs, and healthier retirement plans for the middle class. Has that ever actually worked?

The answer:

Let’s do a thought experiment. You are the CEO of International Widget Corp. Your corporation’s taxes have just been slashed and you now have an additional $20 million in after tax profits without selling even one additional widget. Here of some of the options you have for using this windfall:

  1. Go out and hire a lot more people.
  2. Give all your current employees a nice raise.
  3. Invest in modernization
  4. Give bonuses to top execs and increase shareholder dividends

Right away we can rule out option 1. Demand for your widgets has not changed. You don’t need to make more widgets so you are not going to hire any more people. Option 1 makes zero sense from a business perspective.

What about option 2, give all current employees a nice raise. That also does not make business sense. There is a market value for widget makers and that is what you are paying. If you start paying your widget makers more, your unit manufacturing costs will increase and you will loose a competitive advantage with respect to your market.

Why not start modernizing some of your widget plants? That could lower costs in the long run and make you even more competitive in the market. But, modernization projects take years of outlay before you start seeing any returns. And you are already efficient enough to meet your top competitors’ prices. Not a good use of funds at this time.

So, we’re down to option 4, you will increase bonuses for all of your top execs and increase dividends for shareholders. The execs will be very happy and therefore less likely to leave your company for a competitor. And the shareholders, at least the ones that own a significant portion of your shares, will be thrilled. And since a lot of those folks are also on the board of directors, you will likely get a large bonus as well, and maybe even a new contract.

So, will tax cuts for corporations and the wealthy “trickle down” to middle class workers? Absolutely not!

Is he wrong, if so, why?


The first 3 options presuppose a static economy. Even if all added profits are given out as bonuses and dividends that money is still being injected into the economy into the pockest of people who will do something with it: invest or spend, in the end the results are the same.


The Republicans actually have a proposal?

There are only four options?

However those profits are divided, where does it end up going? Do the corporate execs and shareholders hide the money in a mattress? The answer is ignorant and economically illiterate.


True, RWNJ. Secondarily, since taxes are ADDED to the cost of those widgets, the manufacturer can reduce the per-widget PRICE and thus undercut his overseas competitors and take more of the market for widgets. This benefits widget consumers, as well, giving them more money with which to buy things OTHER than widgets with the extra money.


Yes trickle down works that is reality. The better question is if you don’t believe it works state why.

Your premise:

  1. Correct

  2. Correct in that you cannot pay them more for the same work in the cost model…BUT you can give them a BONUS as a results of increased profitability.

  3. WRONG and I mean REALLY WRONG and not because its just a LibTard talking point which it is but because its not true…TODAY! I can automate processes and do it in days not years, I can buy new and imporved machinery and do it in days not years. I used to own a welding and metal fabrication company as business grew I went and bought new larger capacity welders, then a Plasma Cutter. Went from working with ¼ steel to ½ in, then my next buy we could work with ¾ in, each buy incrased ability and productivity and time to implement was make the buy at my local AirGas Welding Supply, they got delivered that day and we were working better, faster then not years or even months or weeks later.

  4. Again WRONG, REALLY REALLY WRONG: This year my company closed out its 3rd quarter with sales that exceeded last years annual gross sales. So I paid myself a bonus and went and bought a new straw cowboy hat, cost was $160 for that Stetson. I just took bonus money that came from incrased sales and profits and bought a product and while in the big scheme of things a $160 buck hat is not much, but then that is why its called TRICKLE DOWN.

Here is the take away. When I or you purchase goods and services at an increased rate the economy grows. Did I REALLY need that hat, well no, I have a wall full to be honest, but it was time for a new one and I had been looking for sometime and just not found what I wanted. My bonus prompted me to look a bit harder and I found the style I wanted and bought it putting an extra $160 into the owners pocket with some of it being shared with the guy who worked there and sold me the hat.

This always begs the question as to why give the extra money to the middle class and the rich. Because the money not only trickles down, it does so further. Now lets say my very little manufacturing company was a big Fortune 500 company and my bonus was $10 Million, I take he $10 Large and buy a $1M boat, a $1M car at the Barrett Jackson Auction in Scottsdale, peel off $1M for the wife who buys jewelry and clothes, do a $1M remodel and buy a $1m Lake home in another state. The last $5M I put in my IRA.

Now just add up all the people involved who participated in the first $5M we spent, lot of people impacted and I even hired one Full Time to take care of my new car and my other cars in my 24 car garage. LOTS of people just got additional income to spend. The guy selling me the car got a $25,000 bonus and he spent it on stuff and it keeps rolling down.

But what about the poor. Well the money never arrives at least not in todays society where the poor are anything but poor. They are taken care of by the govt, all 98 MILLION of them. They don’t get a bonus or extra money because they do NOT participate in the capitalist process, meaning they are not involved in the good and services side of the market. They live in a world of socialism and on Uncle Sam’s Plantation. Best thing we could do in America is to take them off the taxpayers dole and let them enter into the market place as consumers and workers…but communism socialism has America in its grips with no intention of letting go until everyone is on the Free gravy train…


Just a point of clarification, it’s not my premise, however, I admit that I largely agree with it.

That’s how many the author created. I don’t believe it has to be limited to four. Again, this is one of the reasons I “shop” ideas here. I want to know if there are options that I haven’t thought of. Even if I don’t agree with other people here, I like to educate myself on the thoughts of others.

How so? I mean, the economy at any given moment is what it is, but I can’t see how those assumptions assume a static economy.

Do you believe all forms of investment result in the same level of job creation, training, the creation of plant and equipment etc?


Oaks, I always appreciate the time and thought people like you put into your posts I ask you humbly, can we please refrain from the name calling. I don’t generalize those on the right by calling them names nor do I attack political or religious, ideology, no matter how stupid, dangerous and uninformed I personally believe they are.

I do my best to attack positions with facts as I have come to know them (even if we disagree).

I do my best to treat others here as I wish to be treated and I think in my time here I’ve proven myself respectful of the people that post here regardless of how I feel about the ideas they have.

Can I ask that at least in conversations with me, you pay me equal respect? Is that too much to ask of you and perhaps at least some of your fellow posters?



ALRIGHT, I will for you only…but please concede the FACT, that it is and has been a LIBERAL talking point that I have been hearing since the the Reagan years and in fact either Schumer or Pelosi spewed it out just recently.

At my age I have heard a lot from the far left for a lot of years. For over 50 years I have listened to the drum beat grow louder and more virulent which brings us to today and them beating their collective chests for communism - socialism…I killed communists on killing fields and I am and have always been a capitalist!


#3 is where he’s almost entirely wrong. Companies have tons and tons of expansion plans, but not enough capital to carry any of them out. Increase capital and you increase investment. That will subsequently result in #1. Will it result in #2? It can, but it depends a lot on the labor market. It may or may not produce much of #2. Taxes haven’t really had much impact on income one way or the other.
While #4 is partially true, it will be dwarfed by #3. This has piles of historical evidence. When companies get tax breaks, they don’t pay most of it out in dividends, they reinvest most of it. This is just an incontrovertible fact.

That said, the Republican tax plan will most likely RAISE corporate taxes on a lot of companies. Especially companies like GE who have mastered the tax dodging game. Which is exactly why I don’t think any tax reform would ever pass. Democrats are probably more likely to vote for a flat corporate tax than Republicans. A lower flat tax is mostly good for smaller companies. The most complex parts of the tax laws were written to benefit the companies who spend the most on lobbying and donations. Congress isn’t about legislating against the interests of their donors.


That article is hogwash.

The author made no note whatsoever of the fact that producing widgets has suddenly become cheaper; the result: They can lower prices, and attract more demand. Failure to do so: Their competitors do it and clean their financial clock. That article didn’t come close to presenting all the pertinent facts.

In short, yeah, he’s dead wrong.


It’s a nice assertion and I can respond in kind. There are 50 companies that have almost $1 trillion in cash overseas. I know the response will be to tell me how high US taxes are, but the truth is, if there were demand here in the US to go after, the money would be coming back here if the ROI were there. Even if that were true, companies awash in cash can get loans at near market rates with a lending market at historical lows. banks have more reserves than ever and bank capital is at an all-time high (as rent seekers look for places to earn profits).

I don’t buy the “not enough capital” argument. If anything corporate America is swimming in cash and has nothing to do with it except maintains earnings through stock buy-backs.


Diverstment has been happening for decades. That has almost nothing to do with a lack of capital for domestic investment. Do you think that offshore money is sitting in a bank? No. They’re investing it regularly. It’s very rare for a company to be sitting on cash worth even 1/10th of their total assets. If they have nothing to invest in, they usually just start buying up smaller companies.

That has nothing to do with your original assertion that companies prioritize dividend payments over investment. This is historically false. You need to demonstrate why this tax cut would be different from past tax breaks. Why would a majority of the tax breaks be paid out in dividends. How does this square with the concept of going concern and the ever present need to expand revenue?

You realize most companies have more debt than assets, and they literally have to grow revenue year over year in order to keep ahead of the debt payments? The only other solution would be to use the increase in profits to pay down their debts. And companies almost never do this. Not unless they’re carrying a lot of debt at unfavorable rates.


Wise :slight_smile:
PD mentioned a fifth option. Reduce prices. Prices include expenses, which includes taxes. If taxes are reduced, prices are likely to fall as one widget manufacturer or another realizes it can reduce its price and increase its market share and its bottom line as a result.
6) Research into a better product in order to defeat competitors.

There are no doubt more options and more possible combinations of options that may be likely. Markets will dictate the best use of the funds. Whether the money goes to CEOs of companies that are too big to fail in our cronyist economy is a matter of additional factors that prop up those companies.I think it’s a likely option in many cases, but that doesn’t mean it won’t “trickle down.” I don’t care for that term much. The money will be spent at some point, representing demand for something. That will translate into wages for someone else, who in turn spends the money on something. The answer seems to indicate that money stops somewhere. In reality, it will continue to be an incentive for people to produce and trade no matter what a company decides to do with it.


Prices aren’t liable to drop much. Your expenses dictate your floor, not your ceiling. When you cut expenses, that goes to your margin. You don’t cut prices.

I know the strategy at the very bottom of price/quality would probably use it to drop prices. But their margins are usually so tight they’re barely making a profit in the first place. So a tax break has a much smaller impact on them anyway. If I’m making a 3% profit, a 15% tax break is going to mean I can(at most) cut prices by 15% of my margin(3%). That’s not going to be a noticeable price difference for consumers.


You make a good point.


You do when you don’t want your competition to kick your financial butt out of the market.


Except that’s not what’s happening.

When just a few companies (Oligopoly) hold a market as large as the US, they become less competitive because it’s easier to compete less and earn more profits that way.


Then you do NOT blame that on capitalism, again a far left talking point. I have stated this over and over, the govt’s role (SHOULD be) to keep Corps from getting to large to fail and if they dominate the market that much then they should be broken up like the govt has done since the 1900’s. I think the last big break up was AT&T???


Ok, that’s fair, then Capitalisim run amuck.

I couldn’t agree more. So you’d be in favor of breaking up the 6 media giants, the 4 airlines, the handful of cable companies and the one eyeglass maker (as examples)?

I think a lot of people on the left would support that.


I would for everything other than the airlines. Those are very large by necessity and require economies of scale, and global distribution. I may be open to breaking them up, but I’m not sure if it’s a good idea or not. While I’m open to it, I’d need to be better educated in order to endorse it or oppose it.

It’s a lot like oil companies. They have to be large. You can’t have a 500 man company. That’s one I looked into and settled on opposition.