Old Trickle Down is back in town. He's been away awhile, but he's back now, bigger and better than ever, spreadin' the news that it's "your money." What Old Trickle Down means is it's yours, not the federal government's, especially if you've got a lot of it.
The latest Bush tax plan has done Old Trickle Down proud. No more dividend taxes on the rich folks. No more waiting for that promised rate reduction on upper incomes. No more concerns for moguls and their progeny about the repealed estate tax (excuse me, the death tax) being regenerated. And, if we're especially good, look for a big, fat reduction in the capital gains tax. It's all heaven-sent for the upper 1%, who get roughly half of the benefits.
Trickle Down is livin' large and walkin' tall. Washington is his kind of toddlin' town; he knows if he can make it there, he can make it anywhere. And he's made it there before. Ol' Trick was around in the 1920s, when it all started. He remembers sifting at the feet of Andrew W. Mellon as the Republican secretary of the treasury explained how fattening the pocketbooks of millionaires benefited everyone else. Said millionaires, Mellon included, would invest their tax savings, creating jobs and causing the economy to boom -- producing, in other words, a "trickle-down" effect.
Taxing the rich, cautioned Mellon, amounted to taxing "wealth in the making," a definite no-no. Andy Mellon wanted no more than a 10% income levy on the upper orders, but he settled for a 25% top rate signed into law by his boss President Calvin Coolidge, about a third of what he and his fellow millionaires had been paying (73%) under the Wilson administration. And a halving of Wilson's 1916 estate tax was thrown into the bargain for good measure.
Trick remembers the late 1920s fondly. There was plenty of wealth piled up there on top. If it failed to trickle down, they couldn't blame him; he's only a theory, after all. It wasn't his fault if the millionaires failed to invest and instead speculated recklessly or sank their money into personal luxuries, but he had to leave town anyway by 1932. People were impatient; they insisted on calling the economic downturn a depression.
The Trickster has bad memories of what happened next. He was discredited -- guilt by association. That traitor to his class Franklin Roosevelt proceeded to reimpose progressive taxation on the rich and provide public work for the unemployed. He evidently believed prosperity bubbled up rather than trickling down. The top income-tax rate climbed to 63%, then to 79%, and finally (in 1943) to 88%. The revived estate tax kept pace, tripling to 77% for multimillionaires by 1941. The Second World War (unlike the present war on terrorism) was a war the wealthy truly helped to finance.
When the war ended, FDR's successors stayed committed to progressive taxation. Top marginal rates of between 70 and 91 percent continued right through the end of the 1970s. Looking on, Trickle Down was appalled, but what do you know, the soak-the-rich postwar era saw America achieve its greatest economic prosperity in history and share that prosperity more equitably than ever before, building the great middle class. What was an old tax cutter to do? Trickle Down had to change his act.
He got his chance in the 1980s. He bought some preppy clothes and hair gel, acquired an "aw shucks" manner and an easy, ingratiating smile, and eased back to Washington with the new, laid-back conservatives from California. It was morning again for Old Trickle Down.
Ol' Trick had learned a few things during his half-century in exile. He'd learned, first of all, that you need to sell tax cuts for the deserving rich by indirection and couch them in democratic terms. The reductions are for "the people," but which particular people must never be specified. Furthermore, you make sure everybody gets a little something from the deal, on the presumption that if the working stiff is getting his $200 refund, he won't notice or care that the millionaire is getting one for $20,000. You also give the tax cut a new name -- "supply-side" had a nice ring to it -- and you call it tax "reform" because everyone favors reform. And, finally, you make extravagant claims for it -- that it will solve unemployment, or recession, or anything else afflicting the economy. In short, you imply that it will, well, trickle down.
Sure enough, it worked, and Old Trickle Down was once more in clover. Under his new hero, Ronald Reagan, the top income-tax rate on the wealthy shrank by 1986 to 28%, about where it had been under his old heroes, Coolidge and Mellon. Things should have been perfect; yet somehow they weren't. Americans waited for the trickle, but it never came. The rich got richer, of course, but the 1980s were mostly marked by a short, mid-decade boomlet surrounded by two recessions. Worst of all, nothing trickled into Washington's tax coffers, so the latest Republican era ended in 1992 with record federal deficits on the books.
Old Trickle Down slouched out of town again behind George H. W. Bush, and the country spent most of the next decade digging out of the budgetary hole Trick's pals had dug for it. Not that Trickle Down was discouraged; he simply rested on his laurels and waited. People forgot more quickly than last time, and by 2000 another hero appeared, this time by way of Texas.
Ol' Trick donned his boots and Stetson, and rode off to Washington again. This trip, he added a few new wrinkles. The magic, all-purpose elixir would now be called a "stimulus package." (Who could be against that?). Naturally, there would be the usual high-end cuts in the income tax, but since times had changed -- the millionaires were now billionaires -- the emphasis would be on rewarding accumulated wealth itself (estates, stock holdings) by permanently eliminating all taxes on it.
Take dividends, for instance. Liberals, who believe money derived from passive investments should be taxed the same as money derived from working, call dividends "unearned income," but Old Trickle Down had the answer. Taxing shareholder dividends paid out by corporations liable for what's left of the federal corporate income tax would henceforth be demonized as "double taxation." The boys in the back room loved it, and Mellon smiled down from above. Ol' Trick knows his pejoratives.
It all appears too good to be true. Trickle Down's dreams, which were dashed twice before, seem about to be realized by his surrogate George W. Bush. But still he worries. The economy is struggling, the market is down, unemployment is up, and the federal government, already starved of revenue by Trick's 2001 tax cut, is projecting a dramatically higher budget deficit. These things did him in before. He knows that if people catch on, he could be history once and for all. It's hard being an anachronism.
Wayne O'Leary is a writer in Orono, Maine.