Trickle-down Economics (also known as the Supply Side Economics and Trickle-down Theory) are terms in United States politics to refer to the idea that tax breaks or other economic benefits provided by government to businesses and the wealthy will benefit poorer members of society by improving the economy as a whole. The term has been attributed to humorist Will Rogers, who said during the Great Depression that “money was all appropriated for the top in hopes that it would trickle down to the needy.” The term is mostly used ironically or as pejorative.
Proponents of tax cuts often claim that savings and investment are essential to the economy, and thus less taxes (for any and all income brackets) need not harm any other income bracket. Economist George Reisman, a proponent of tax cuts, said the following: “Of course, many people will characterize the line of argument I have just given as the ‘trickle-down’ theory. There is nothing trickle-down about it. There is only the fact that capital accumulation and economic progress depend on saving and innovation and that these in turn depend on the freedom to make high profits and accumulate great wealth. The only alternative to improvement for all, through economic progress, achieved in this way, is the futile attempt of some men to gain at the expense of others by means of looting and plundering. This, the loot-and-plunder theory, is the alternative advocated by the critics of the misnamed trickle-down theory.”
Today, “trickle-down economics” is most closely identified with the economic policies known as “Reaganomics” or laissez-faire. David Stockman, who as Reagan’s budget director championed these cuts at first but then became skeptical of them, told journalist William Greider that the “supply-side economics” is the trickle-down idea: “It’s kind of hard to sell ‘trickle down,’ so the supply-side formula was the only way to get a tax policy that was really ‘trickle down.’ Supply-side is ‘trickle-down’ theory.”Business frameworks like Trickle-down Economics are invaluable to evaluating and analyzing various business problems. You can download business frameworks developed by management consultants and other business professionals at Flevy here.