“Voodoo Economics” is what George H.W. Bush called Ronald Reagan’s economic plan when he was running against Reagan for the Republican nomination for the presidency in 1980. What Bush called voodoo economics is more commonly called “trickle-down economics.”
Trickle-down economics is based on the unproven theory that benefits for the wealthy trickle down to everyone else. In other words, when you provide tax cuts for the rich, this savings to the rich and to large corporations are used to expand businesses, which then create more jobs—or so the theory says.
Bush lost to Reagan in the 1980 primaries and then joined Reagan as the candidate for vice-president. Consequently, Bush ceased to criticize this voodoo economics, and that was the last of major Republican criticisms of this policy.
Although trickle-down economics has not been proven to work, it has been a consistent mantra for the Republicans for over 40 years. And it’s back! When Republicans are in control, the primary policy they push is always tax cuts. Trickle-down economics through tax cuts mainly for the rich do not work, and many of us doubt that Republicans believe that they work. It just seems to be a ploy to reduce taxes, mostly for the rich.
The theory is flawed from a practical perspective. For example, which is more likely to spend money gained by tax cuts, the wealthy or the middle class. Of course, it’s the latter. The rich have extra money without tax cuts. Thus, they are most likely to save it, not spend it.
It is commonly—but wrongly—thought that tax cuts worked during the Reagan years. President Reagan’s tax cut in 1981 caused a revenue loss of $264 billion over his two terms in office, and the federal debt tripled.
The economy did improve under Ronald Reagan, but not as much as it had gained in the preceding decade (the 1970’s) or the next decade (the 1990’s) under Bill Clinton who raised taxes. Factors other than tax cuts aided the economy under Reagan. First, there were several tax increases under Reagan. Then, there were the monetary actions of the Federal Reserve.
Also, there was a considerable growth in defense spending and highway construction, increasing the federal government’s purchases of goods and services, which is textbook Keynesian economics, an economic approach favored by Democrats.
Trickle-down economics theory said the Reagan tax cuts would help people in at all income levels. It did not. Rather the opposite occurred. Income inequality worsened. And that is what is likely to happen with the current Republican tax cut plan.
The current bill is heavily weighted toward business. According to analyses by the Tax Policy Center, over the next 10 years, the Trump/GOP plan would actually increase taxes on personal income by $470 billion while reducing taxes on business income by $2.6 trillion.
Large corporations do not need tax help. They are flush with cash. And they are not investing in the business and thereby hiring more workers. This tax plan is not much more than a means to provide tax cuts to the rich—a consistent policy that Republicans have pushed for many decades.