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Financial Planning > Tax Planning > Tax Reform

Trickle My Fancy

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Trickle My Fancy

I have never understood the much-vaunted trickle-down economic theory and how it was supposed to work.

And since the theory never has worked I suppose that lets those of us untutored in the fringier branches of economic arcana off the hook.

But then, lo and behold, in the last couple of weeks it all became clear. And how did it become clear? It was as I read about the third quarter profits of Big Oil, specifically Exxon Mobil and Royal Dutch Shell PLC.

Between them, these two titans amassed over $19 billion in profit in the quarter–Exxon came in just shy of $10 billion and Shell just over $9 billion.

So, finally trickle down became clear–as the rest of us were getting squeezed mercilessly at the gas pump, profits were trickling down into the coffers of the oil companies.

You put enough trickles together and you get a gush. You put enough gushes together and you get an oil company like Exxon that is on track to make some $34 billion in profit for the year.

Now, of course, these obscene profits have nothing to do with high gas prices. Indeed, if you listen to the explanations you start to feel nothing but intense sympathy for Big Oil because it, too, is getting squeezed like the rest of us. The only difference is it’s getting squeezed and profiting by it.

So, will Big Oil take those profits and build more refineries to open up the pipeline, so to speak? That is, use the money to trickle down benefits to the rest of us. Not likely is the answer–you see, refineries are very expensive.

This, my friends, explains why the meretricious theory of trickle down never worked and never will. The plain fact of the matter is that those who amass all that wealth and then supposedly put it to work in society never do. (Bill Gates a big exception.) It also explains why those trillions of dollars of tax cuts so beloved by our current President have not had the effect of promoting growth that was their raison d’?tre. Trickle down using an alias.

I was going to say have not had their intended effect, but I think the tax cuts have indeed fulfilled their intention, which was making the rich richer and the very wealthy the stuff of fantasy.

Don’t take my word for it. No less an authority than the Internal Revenue Service published its report for 2003 showing how the income disparity between the very rich and the rest of us grew and grew.

As The New York Times put it, “the share of income going to the richest slice of Americans–the top tenth of 1 percent–grew significantly in 2003 while the share going to 99 percent of Americans fell.”

The article continued, “At the same time, the effective income tax rates paid by the top tenth of 1 percent fell sharply, declining at more than 10 times the rate reduction for middle-class taxpayers.”

And so now we get the preposterous proposals from the President’s Advisory Panel on Federal Tax Reform. Essentially the recommendations would do away with most if not all tax breaks for the middle class–including key insurance savings vehicles–so that all of us, including that top tenth of 1%, could file our tax returns on a postcard.

But just because the recommendations are preposterous doesn’t mean they’re not dangerous. They put a footprint down for the future.

So, maybe it’s time for the 99.9% of us to try a trickle-up theory by sending a message to our lawmakers regarding these recommendations. That message: Don’t even try it.

Steve Piontek


The meretricious theory of trickle down never worked and never will. The plain fact of the matter is that those who amass all that wealth and then supposedly put it to work in society never do.”


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