How Trickle-Down Economics Works

The concept of trickle-down economics is tied to Ronald Reagan, but the idea's been around and in use since the 20s. It's simple: Give more money to the wealthy and they can use it to rev up an economy. But is the whole thing just a scam?

Learn more about your ad-choices at https://www.iheartpodcastnetwork.com

See omnystudio.com/listener for privacy information.

Episode Transcript

Speaker 1 (00:00):
Welcome to Stuff you Should Know from house Stuff Works
dot com. Hey, welcome to the podcast. I'm Josh Clark
and there's Charles W. Chuck Bryant and Jerry and they're
snickering and tittering, and that makes this stuff you should know. Yeah,

(00:21):
we've got sidetracked before talking about things that trickle. Names,
names that trickle. Yes, like the famous race car driver
Dick Trickle. You say, your road dude, I swear to
God look him up. I will don't image search and
just look him up. Okay, guys specify race car. Yeah, okay,

(00:43):
that's a good idea. Your Google Master with your Google fou. Yes,
and we the three of us, are apparently all eight
years old again. Uh, speaking of trickle, Chuck, Hey, happy birthday.
That would be quiet. Jerry, you have a big mouth.
You're always talking. Well. I usually remember, but I don't
didn't today, So happy birthday. Thank you. I appreciate it.

(01:06):
And this will be out several weeks later. But right,
I'll get to relive my birthday all over again. Thanks man.
Have you Chuckers ever seen the movie Ferris Bueler's Day Off? Yeah,
and then we'd go there at some point in this one. Yeah,
because of ben Stein. Yeah, okay, good, so you know

(01:26):
the answer then something the o economics anyone who do economics? Yeah,
when they're an ECON class. The guy says, Bueller, Bueller,
that's ben Stein. Remember he had that show when ben
Stein's money which was really his money? Yeah it was,
wasn't it? I think so? I think le Yeah, I
think maybe like they gave it to him if it

(01:48):
wasn't one or came out of a salary, who knows. Um.
But before that show came on, he was in Farris
Bueller's day off as an ECON professor. And I believe
he does have a degree in economics. He's also just
a great actor and vizine pitchman. But what are he
was talking about in there? He was clear? Clear, I

(02:08):
thank you? Clear? Is awesome. Yeah, that's right. That sounded
like not ben Stein. That's as steiny as I get. Anyway,
he was talking about voodoo economics, and voodoo economics was
another name for trickle down economics a k a. Reaganomics.
And the person who coined the term voodoo economics do

(02:29):
you know John Hughes No, Yeah, it was George Bush
sr h W. Remember that Yeah. He he was running
in the primaries against Reagan and for the election before
he came on as his vice president, and he was
deriving Reagan's economic policies, specifically his belief and trickle down

(02:50):
economics as voodoo economics because there's some apparently, some sort
of magic to the whole thing that makes it work
rather than sound economic principle. Yeah, it occurred to me
today when I was studying the stuff that John Hughes
picked this very topic to represent the most boring thing

(03:10):
you could talk about. I guess so. And uh, it
took me a few times to to figure it out,
because you know, I don't My brain doesn't skew towards
understanding economics. It's it's tough to do. But I finally did,
and I was like, you know what, it's not the
most boring thing ever, it's uh, it's pretty interesting. If
I came around. That means anyone can now it's just

(03:32):
our um our burden to make it interesting to everybody else, right,
which we've already failed that spectacularly. That's right. So let's
talk about this idea first of all, trickle down economics. Um,
we'll explain the whole thing in detail starting in just
a moment. But we should probably say that the disclaimer

(03:53):
if you want to drive a fiscal conservative or a
conservative economists, or just to conservative in general. Crazy mentioned
trickle down economics. Like call what they call supply side
economics trickle down economics. It drives some bonkers. There's like,
there's no such thing as trickle down economics. It's a

(04:14):
derisive term. It's um it doesn't capture the spirit or
the thought behind supply side economics, which is what they've
come around to call it. But back in the day,
it was definitely called trickle down economics. And the whole point,
the reason why it was called trickle down economics, is
that the idea behind it is if you place wealth

(04:36):
with the wealthiest people, this idea goes they will take
that money and invested into the economy, which will get
things running again, and as a result, that economic engine
revving up will create more wealth at the top that
trickles down to the lower working and middle classes. Yeah, like,

(04:57):
who better to stimulate the economy than the super rich,
and they will like maybe open a business to put
people to work, and then those workers will benefit and
uh directly from that investment that that person made right.
So this is the whole tree behind it. We should
also disclaim even further that economics as a field is

(05:20):
so far from science it's preposterous. Um. Most economic theory
that you ever will run into from John Maynard Keynes
or Adam Smith or um Jean Baptiste, Um. These guys
are talking about pure economies the United States, and I

(05:42):
don't think there's any economy in the world that is
a pure economy, free market economy. The United States has
things like tariffs, and um, we have things like government intervention,
tax policy, monetary policy. There's intervention in the markets. So
you can't ever say. We can't say really what causes

(06:05):
recessions and what brings us out of them, or whether
trickle down economics is effective or if it's not, or
if it is effective, is it effective in the long
run or the short run? And what about the opposite way,
is that effective in the long run or the short run?
We don't know. People think they do though. That is
the thing. That's why like this kind of stuff can
get people's blood boiling. So like the point of this

(06:26):
one is to just talk about trickle down economics and
the theory behind it and why it may or may
not work, and um, on the caveat that we don't know,
and neither do economists. Yeah, I think I left this
at a little frustrated after my research because I thought
I would come away with an answer. Um. But I mean,
if you look up Reaganomics, which is another name for

(06:47):
Reagan's version of the supply side economics, you will find article,
well more than that, but hundred articles on how what
a great success it was and then the abject failure
of reagonomics, and no one is going to agree. I
looked at some of these theories and said, well, that
makes sense in an ideal world. Then I look at

(07:07):
the opposite and think, well that makes sense in an
ideal world. And I don't I don't know if you,
like you said, I don't know if you can. I
don't know if there is an answer. Even though everyone
thinks that they're right, both people can't be right both sides. No,
it's true, because these are very opposite in most cases ideas. Yeah,
but what I did find was a bunch of articles
after digging further that said the failures and successes of Reaganomics.

(07:34):
And I think, to me, that's probably a little more
accurate because it is in a black and white situation. Well,
the part of the problem is is if you point
to Reagan's tax policies, right, and and Reagan is tied
to trickle down economics, and we'll get into the history,
like we'll clear all this up. But he's not really
the first one to implement this, but he's he's tied

(07:55):
to it. But if you look at reaganomics, the problem
is this, Chuck. If if you say, well, the nineties
were very prosperous with the dot com boom um and
the the Nasdaq hit like like a record ten thousand
points at like in the nineties, all that was from
Reagan's policies, Well you can't say that that was from

(08:16):
Reagan's policies. We we don't know. We just simply don't know.
Was it something short term that the Clinton administration was doing,
or was it the long term effects of Reagan's text cuts.
We don't know. Yeah, and we're going to get scores
of email from people saying what we do know, but
we don't know, So just send your email. It's fine,

(08:38):
but you're wrong. Uh, well, I guess we should go
ahead and say too that just the name trickled down
was coined by Will Rogers, famous Humorous in the nineteen twenties.
It is not a nineteen eighties thing. It had been
around for a while and he said, quote the money
was all appropriated for the top in hopes that it
would trickle down to the needy. And that's where started

(09:01):
to get it a derogatory feel around that name for sure.
Since the twenties and and over time, um, especially since
the eighties, the people who champion trickle down economics or
this this particular version of trickle down tax policy have
tried to distance themselves from the term trickle down because

(09:24):
it does seem elitist and it seems like a big
wealth transfer, which in fact it is. Um. Let's let's
talk about this. Trickle down policy isn't necessarily um associated
with Reagan's tax cuts. The whole idea is behind trickle down.

(09:44):
As I said already, as you take wealth and you
give it to the wealthiest people, that's that's what's done.
It's a wealth transfer, and it's usually done at a
time when you're in an economic slump, so you're hoping
to revitalize things. Yeah, it's the g we're meant trying
to smooth out the rough spots in the national economy,
like a k A. Recessions. Um, so you're transferring wealth.

(10:08):
You're transferring wealth though on the premise that that money
is going to be reinvested, reinvigorated, used to reinvigorate the economy. Right,
So it is a wealth transferred, but with the one
we're talking about today specifically, Um, we're talking about Reagan's version.
So it's a wealth transferred through tax cuts. Right. So

(10:28):
when Reagan came into office, Uh, he took over a
tax policy where the highest tax rate was like seventy.
The highest earners were paying seventy on their highest income,
and he got that down to about fifty. Yeah, which
is still seems incredibly high today in an age where

(10:50):
we're paying like thirty the highest earners are. So the
point is is Reagan did it through tax cuts. But
the that doesn't mean like trickle down economics don't doesn't
equal text cuts necessarily, it's it's that's that's one way
of putting more money into the hands of the wealthiest,

(11:10):
right Exactly. It's really a question of supply and demand.
And I guess we can go back through time. A
little bit to John bptis say who you mentioned, uh,
nineteenth century French economists, and his his philosophy has been
misinterpreted a lot as supply creates its own demand. It's
not exactly right. What he was really saying is products

(11:32):
are paid for with products, and money just had like
a temporary function. Um. Yeah, Like if you are somebody
who produces something, when you produce that something, that item,
when you go make that shoe and you're gonna sell
your shoe, which is with the whole reason you made
the shoe in the first place, and then with that
money you can go use it to buy other goods

(11:55):
and services. So the production of that shoe created a
wage for you, which in turn stimulated consumption demand from
you for something else. Yeah, product is paid for the product.
The misinterpretation that supply creates its own demand is it's
just a bastardized version. And that basically means that there

(12:15):
would never be a failed product, like you can just
produce and produce and produce, which isn't sound No, that's insane,
And I think Say would have said that that is
not true as well. Well, he did he did um
during his lifetime even say like, well, no, I mean
there it's possible that there is such a thing as
over production. Sure. I mean, like if you think about it,

(12:36):
like during the uh the housing market crash, Yeah, it's
starting a few years ago. There was a glut of
homes on the market. And it's not like the people
who are building homes just merely went on building homes
and building homes and building homes. Like once the demand ceased,
they stopped producing, and we still had a glut on
the market and the ones who were still just thinking

(12:58):
money and to build, like build, just stop basically. Yeah,
And it was because there was an oversupply because demand
had ceased. So the idea that that if you if
you produce it, demand will come on a short term
basis is this kind of a fallacy. Yeah, but in
the earlier days of this country, a lot of big

(13:19):
thinkers agreed with him, like Jefferson. Um. But the tide
turned later on in our country with the introduction of
Mr Keynes Keensie and economics. Yeah, so we've talked about
in our audio book. Yeah, we did stuff you should know,
super Stuff Guide to the Economy, Yeah, which is probably
super outdated, I wonder, but there are some I think

(13:42):
there's some evergreen content in there. Yeah. I mean it
was like an economics one on one course with us. Yeah. Um,
but so so. The basis of Says law is that
if you stimulate um production, then you'll get the economy
going again. And it was implemented for a while like
some of the some of the early twentieth century presidents

(14:05):
like Hoover, among others like Harding and Coolidge, well JFK. Later,
but early on in the twentieth century, Harding and Coolidge
both implemented, um, this kind of what's called supply side
policy text policy right where that where if you stimulate
production through lowering taxes at the top and we'll tell

(14:30):
you in a second how those two are correlated, Um,
you can get the economy going. Yet. Well, Hoover also
followed the same policy, and under Hoover's watch the Great
Depression happened. Yeah, which would cause any just regular thinking person,
even if they don't understand economics, to think, hey, we're
doing it wrong. Right, So Roosevelt came along, That's right.

(14:51):
Roosevelt held the opposite view, and he was very much
a Kinesian and he was operating at the same time
that Keynes was writing and working himself, and John Maynard
Kane said, no, no, no, you guys have it backwards.
You don't stimulate the supply, you stimulate the demand. Then
all of a sudden, if you have a housing glut

(15:12):
and you suddenly have people who have more money to spend,
they'll take care of your housing glut and then things
can get back to normal. We reach equilibrium again. Yeah,
he was about, uh, short term ideas, short term fixes,
maybe lower interest rates, maybe taxes, fiscal policy, taxes and spending.
Basically what you hear a lot about these days. It

(15:34):
you know, Kenzie and economics kind of lasted a long
time until probably Kennedy and then Reagan. It's like there's
only been a handful of US presidents really endorse the
trickle down theory. Yeah, like wholeheartedly since the twentieth century. Yeah,
um so yeah, it's the Keynesian policies ruled, and it
was very much about like cutting taxes for the lower

(15:57):
and middle and working classes, increase texas for the rich.
Because if you if you're a government, you still need revenue, right,
so you can't just cut texas for everybody. If you
cut Texas for one group, you kind of need to
increase it for another because you still need your money
coming in. Of course, you could also take the radical
step of figuring out how to eliminate waste and blow

(16:18):
in government. That would help a lot, but we're not
talking about that in this one. We're talking about trickle
down economics. So then along comes Kennedy who says, hey,
or my dad was a pretty rich so I'm kind
of thinking that this trickle down thing might work. So
he got into supply side economics. And then when Reagan
came along, he really championed this whole idea. And it

(16:41):
was out of a result of some guys in the
seventies saying, um, there's this whole other thing that we've
been ignoring, which is this trickle down tax policy that
we should implement, and they got Reagan into it and
he implemented it. Yeah, and uh, after this message break
coming up here in a sec we're going to talk
a little a bit about if it doesn't sound like
it makes sense to you, there's a certain curve that

(17:04):
will explain that might clear it up for you. All Right,
So we're gonna talk about the Laugher curve. Which was
also in Ferry Spueller. Oh was it? Yeah, he says,
Laugher curve. But in high school, I had no idea.
But I was like, what are those words together? I
don't understand. Laugher was a person l A f f

(17:25):
e er and um. The Laugher curve helps explain a
little bit why trickle down economics could possibly work. Is
that a good neutral way to say that, I would
say so. Uh. The idea of the Laugher curve curve
is that the relationship between taxes and revenues is a
curve instead of a direct relationship. So at a certain point,

(17:48):
let's say you own a company making shoes and you
grows ten million dollars through like the first two financial quarters,
and your tax that let's say, and you know, if
you make any more money than you're gonna jump up
into that text uh tax category. You might slow down production,
you might halt the production altogether. And so you know what,

(18:09):
I'm gonna take off the rest of the year, maybe
even put these people out of work for four to
six months furlow furlough and because I don't want to
be text anymore. So if you look at that on
a graph, it's gonna be if you text people, they're
not gonna work. If you text people zero percent, you're
not getting any money. So in the middle of there

(18:32):
is the curve, right It Basically Laughers curve suggests that
the correlation between UM tax rates and tax revenue is
not totally positive. At some point it starts to go
back down. Yeah, that's called the prohibitive range. At a
certain point, people don't want to be text in that range. Yeah,
And it's not even necessarily that they are not working

(18:56):
any longer because they resent being taxed. What laugh For
was pointing out is that there is this prohibitive range,
and within the prohibitive range, UM, you remove the incentive
to work. Theoretically, where UM and Jay mcgrathrough wrote this,
Uh gave a pretty good UM example where it's like,

(19:17):
if you make that money and you are text that's tolerable,
you're still gonna make You still get to keep fifty
percent for yourself. But when you're texting that nine percentile, UH,
you're let's say you were going to make another million dollars,
you have to give nine thousand of it to the government.
You just get to keep a hundred thousand, Well, you

(19:37):
might decide to just go and spend the rest of
the year at your beach house with the money that
you did make, not because you resent being texted, because
it's just not worth it to to exert that effort
to make that next million dollars when you just get
to keep a hundred thousand of it. So at that
point in that prohibitive range, the text policy is effectively

(19:59):
keeping people from working, inducing them to not work any longer,
which is bad for an economy. And that's if you're
if your work, if your income is directly related to
your work, right, you could conceivably, if you owned a
factory or something, and you didn't have to really exert
any problems and you could still make payroll and all
that stuff, it might be worth it to just leave

(20:20):
it to these other people to make that extra hundred
thousand dollars for you, rather than go off to the beachuse.
But if you your effort directly um is tax then yes,
it would become a disincentive towards work. Conceivably. We should
point out Chuck and Jane didn't do a very good
job of doing that in this In this article, Laugher's

(20:41):
curve is a thought experiment. It's not based on data.
It's not um hard and fast rule or a law.
It's basically an intuitive idea of tax rates and their
effect on tax revenue. Yeah, but if you don't even
have to be a business owner, Let's say you're just
a regular employee that makes a salary, you have a

(21:03):
salary sweet spot as well. You know, if it's great
to get promotions and to get raises, but if you're
really climbing the ladder at a certain point, you might think, Man,
I got a big raise, and I'm making barely any
more money than i made before this big promotion because
I've been kicked into a higher tax bracket. So that's
the prohibitive range. And you know can apply to you.

(21:25):
I mean you can't. You don't stop working. No, But
you may say, I don't actually want that promotion because
it's going to be more responsibility and really not much
more money. So I'm gonna hang out right here rather
than keep going in my little range or whatever it is.
So that's Laugher's curve, and that's a it's a kind

(21:46):
of the basis of trickle down tax policy. It's the
idea that Okay, there is a point where you can
tax too much and now you're actually slowing down the economy. So,
based on Laugher's curve, when you're looking at it through

(22:07):
um through trickle down policy, there's a point then that's that,
like you said, there's a sweet spot as far as
text revenue goes, and it creates this seeming paradox where
if you cut tax rates at a certain point, you'll
actually increase tax revenue because people will be incentivized to

(22:27):
work more throughout the year. And the other basis of
trickle down theory is that you are going to put
more money or keep more money with the people at
the wealthiest people who under this idea are more likely
to um invest it back into the economy, right, and

(22:51):
when they do that, supposedly allegedly, the economy booms. Yeah,
what you can account for is just the single person.
This is looked at in the broadest terms, because somebody
could make all their money and just sit on it
in the bank, which isn't reinvesting it. That is a really, really,
really big point. You'll remember back at the beginning of

(23:13):
this recession, the FED was doing everything it could to
cheapen lending and still has been and uh, it didn't
do anything. Like you have to take into account things
like um insecurity, fear, um just being human, yes, being human,

(23:35):
Like we're not necessarily rationally maximizing actors. Humans are like
there is such thing as fear and the idea that
maybe hoarding money is best. So what's possible then if
you follow this trickle down tax policy, is you're taking
money from everybody else and giving it to the rich.

(23:57):
Or if your head just spun because your fiscal conservative,
what you're doing is allowing the rich to keep more
of their income, but they're not doing anything with it
right at least as a short term fixed that's not
a good idea because you can probably bet that eventually
the rich are going to take that money and invested

(24:19):
back in the economy. But it's not. Yes, but when's
that going to happen? You can't really say. And part
of the other problem with it is is that you
are then also basically handing money out at a fire sale.
You're saying, hey, here's a bunch of money invested back
in the economy. And have we mentioned the bargain basement

(24:40):
rates you can get on all of these businesses over
here because the economy is in a recession. Yeah, very much, so,
you know. And it's it's like it is literally a
wealth transfer, and under some circumstances like the recession that
we're still coming out of now, it is a wealth
transfer and an asset transfer, and that the people who

(25:03):
have the most money, the wealthy, also have the most
buying power and they have the best bargains. Yeah. Thomas
Sowell is a is an economist, and he um, he
won't call it trickle down economics because he thinks it
literally benefits the workers immediately and first because in the

(25:26):
idealized version, they're gonna reinvest in. The very first thing
that's gonna happen is they're gonna put people to work
and people are gonna have jobs. Uh so, yeah, you won't.
He's not gonna call it trickle down theory because he
thinks it works literally the opposite way. Now. He I
read a column in the National Review by him, and
he's like, you will never find a legitimate economist, um,

(25:49):
a history of economic theories and policies and analysis. You'll
never find trickle down economics anywhere. Like it drives him
crazy that people call it that because it has such
a um a negative association, an elitist wealthy association. Yeah.
And you know when you if you're during election time
or during if you see these big tax cuts for

(26:09):
the wealthy, if it makes your blood boil because you
think they are these people are obviously in the hip
pocket of the politician. That may be true, but you
can still remove yourself from that and look at the
theory itself and does it work or does it not?
And we will do that after this message. So Chuck,

(26:42):
let's let's do just that, um passionless run down of
how it trickled down supply side tax policy works. Yeah.
I mean, it's got to be passionless with me, because
I have no idea. I like, I can't argue hard
for any side because I read so many articles disputing

(27:03):
one another completely that I have no idea. So okay,
so you're we're in a recession and there's a discussion
is it supply or demand that you want to stimulate? Well,
with supply side economics, trickle down is what you call
it in the vernacular. You want to stimulate the supply

(27:24):
because under this belief, if you stimulate the supply, them
the people who are producing stuff will have stuff for
sale and people will buy it, and more money will
enter the economy and things will get back to normal,
because the basis of this is that people still work

(27:48):
during recessions, and since they're working, they have money to
buy things. Not everybody's working, But you can handle the
idea that not everybody's working by getting production going again,
because that creates jobs and that in turn generates even
more income. It's passionless. So how do you do that?

(28:09):
According to trickle down supply side tax policy, you cut
the tax rates of the wealthiest people. You incentivize them
to keep working harder and harder because they get to
keep more and more of it themselves on the hope
that rather than keeping it themselves hoarding, they will inject

(28:31):
it into the economy through things like investing, expanding their businesses,
hiring more people, opening new businesses, and taking that investment
and making more money themselves. But in the meantime spreading
the wealth around through things like wages and tax revenues

(28:52):
through minimum wages. So that is supply side tax policy,
and why where it works or not, the jury is
still out. I did find something from um fair Economy
dot Org, which I have to say, I don't know
whether they're nonpartisan or liberal. They definitely didn't strike me

(29:14):
as conservative, but um, so take it however you want.
But they took the UM tax rates, the top tax
rate and it's changes from nineteen fifty four to two
thousand two, and they took the changes to that tops
tech top tax rate, the highest tier, which is the

(29:35):
one you're supposed to cut under this this type of
text policy, and they juxtaposed it against four different economic indicators,
growth in the gross domestic product, which is kind of
like the indicator of the overall health of the economy, UH,
income growth rate, which is, you know, how the average
Americans wealth grows, UM, I think, changes to employment, and

(30:01):
the growth of the hourly wage. And they found that
the correlation was basically statistically non existent. That when you
lower tax rates or raise tax rates, but specifically in
this case, when you lower the highest tax rate, it
does nothing to improve the GDP, to improve hourly wages,

(30:23):
to improve median wealth, um. Just just statistically speaking, over
the course of the two lowering the tax rates did
nothing for those things. So speaking from that, and you
can say, well, it doesn't really do anything Yeah. Well,
with with Reaganomics, I think, well again, I say, most

(30:45):
people agree, but no one agrees. Uh, it did help inflation,
if he was it was because of his policies, but
tax revenues didn't seem much change at all under those policies. Uh,
we're not even into you know, the part of Reaganomics
where he kind of shut down trade with a lot

(31:06):
of countries, keep it in house and the effect that had.
And I I've gotten varying answers on how long after
presidency can you even look back and with a good
judgment um of like the policies really take effect ten
years later when you're gonna see or no, it's more
like twenty years or no, you can see it immediately

(31:26):
with short term fixes. So it's the whole thing is
very frustrating because no one agrees. Everyone thinks they're right. Yeah,
that's the frustrating part is everybody thinks they're right. Like
Obama's policies are almost virtually the exact opposite of Reagan's. Well,
that's funny you say that, because that's not necessarily true.
He a lot of ways they are. Well, he in

(31:47):
that he kept the Bush era tax cuts going he's actually, well,
that's true, kept lower um tax rates than Reagan did.
And Reagan's always pegged with the trickle down economic theory, right,
Obama's got this other one going. It's called quantitative easing.
So with Reagan it was trickled down tax policy. Under

(32:10):
Obama it's trickled down monetary policy, and by pumping money
into the markets through the FED, it's actually helping because
of this income inequality. It's helping the wealthiest Americans by
far without anything trickling down really to the um lower,

(32:32):
working in middle class Americans. So trickle down policy doesn't
necessarily just mean tax policy. You can also mean monetary policy.
And we've got a very specific trickle down policy being
carried out under Obama's entire two terms so far through
quantitative easing. Either way, there's a vast transfer of wealth

(32:55):
going on right now, just as there was in the eighties. Yeah,
I suggest people it up on their own if they
want to jump in this argument. This one kind of
also once you really start looking into it, especially if
you go beyond like what helps and really step back
and look at what's being done and the effects of it.

(33:17):
Forget you know, well, my idea is the best way
to to cure recession Theoretically, like if you if you
just get out of that mindset and you look at
economic policies and you look at them through the lens
of income inequality, then suddenly conservative and liberal and Democrat
and Republican all just kind of fade away, and basically

(33:40):
everybody has reason to feel like they're being talked out
of something very valuable. Yeah, I came up with an idea.
I'm sure I'm not the first person to come up
with it. Uh, Josh and Amix, I wonder if if
you did cut down on the tax rates for the
wealthy to to about where they are now. This this
is like bargain basement tax rates. Frankly, it used to

(34:04):
be at in the sixties ninety was the highest. Now
it's thirty five under Reagan. Much of the world pays
a lot more taxes than we do. Oh yeah, so
I think it is fair for everybody. You to say
the least, if not unfair because it's so low, but
let's say that it's fair. You keep the tax rates

(34:26):
low on the wealthiest earners and you let them build
up as much money as they want in their lifetime,
but when they die, you tax their estate like there
is no tomorrow. And I wonder, first of all, you
increased revenue, but you also prevent dynasties. Uh, you want
to prevent dynasties. Sure. I read an article about how

(34:49):
UM the those who inherit wealth tend to invest it less.
They tend to hoard it more because they didn't have
any means of accumulating wealth other in a windfall. I
think if you just look at it statistically speaking, and
you look at rather than again on an individual basis,
if you look overall, when wealth is inherited rather than earned,

(35:13):
the inherited wealth is less often invested in ways like
um that create new jobs then the wealth that's earned.
And it's the same thing like if you won the
lottery or something like that. You should be terrified of
losing that money because you didn't do anything to earn it.
So there's no guarantee whatsoever that you will ever earn

(35:33):
that money or have that money again once you spend it.
If you amass a fortune in industry and lose it,
you did it once, there's a likelihood that you could
go do it again, but you're more likely to take
more risks with that wealth, but people work to take
care of their families for generations to come, like that's
what their goal is, right. So let's say you have

(35:53):
a hundred million dollars state and you have one kid,
and your state is taxed at when you die, your
kids still gets ten million dollars. If your kid inherited
ten million dollars, you're a wealthy person and your kid

(36:14):
inherits ten million dollars. I think you can get your
eternal rest easy knowing that your kid's gonna be okay
with the ten million bucks for the rest of his
or her life. I think that's fair. That's enough to
set them up in business for sure. That's enough of
a leg up that most people don't have. I uh,

(36:34):
that's fine. You don't have to agree with me. Yeah,
I think it's I think it's like when I hear
about Bill Gates is only gonna leave his kids so
much money or whoever was it Bill Gates or Warm
Buffet or someone they both are, they pledged like a
significant amount of their their estates right to not get leave.
It just lead that to their children. I think that's
that's great, But I think that's like it should be

(36:55):
a person's choice and the government shouldn't make that decision
for them. Like government making decisions like that just that
makes my blood boil. But that's tax policy, man, Like
they can make that decision while you're alive or when
you die. It's still there your income being taxed. In
the other way, it's like are they taxing your inheritance
before your death or well, But it isn't tax policy

(37:18):
because josh An nomics isn't. No. But the very fact
that there are taxes and then it's progressive means that
the wealthiest people pay more. The more you learn, the
more tax you pay. So why does it matter whether
it's now or when it's when you die? And I
that's not an entirely that's kind of a globe interpretation
because I realize what I'm saying is normal taxes now

(37:41):
and then a heavy tax when you die to prevent
dynasties and to increase revenue. I just don't think it
will disincentivize work because I think while you're alive, you
still want to make money. People's those the people who
are dedicated to amassing hundreds of millions or billions of
dollars that's not going to prevent them from making money

(38:01):
while they're alive. It's not you don't think they're still
alive and their kids still get a slice of the pie.
But what about their kids kids and their kids kids. Well,
then it's up to their kid to go out and
through his own effort or her own effort, yeah, amass
their own fortune just like everybody else's. Everybody gets to
start at zero, although those rich kids still get that

(38:24):
leg up of ten percent of the estate. It's it's
just my idea. I got your Josh and omics, Josh
ms Man, we're gonna get some letters for that one.
You got anything else? Uh? And hey, let me say that, like,
I think people should be able to live much more
meagerly than they do. I'm not a proponent of people

(38:45):
leading these lavish, wasteful lifestyles, but I think if you
know you've made your money in a legitimate way, then
that's your right to do so. I guess you know, yeah,
I wouldn't want some government putting their hand in my
pocket and saying, hey, you worked really hard for all that,
give me it. Well, I mean, who does Nobody wants that?

(39:05):
Especially when you when you look at government wastefulness or
if you don't want a fund war or something like that, like,
then it makes it even harder to bite. The whole
thing makes me want to drop out and move to
an island or someplace in the woods, very quiet, to
where I don't have to even think about any of
this stuff. I got my little garden and got my

(39:26):
chickens and my goats. You need to go make some
money so you can do that. Yeah, I want just
a little nine bedroom house on like with the staff. Yeah,
all right, are we done with this? We're done with
trickle down economics. If you want to learn more about it,
you can read this article on how stuff works dot com.

(39:48):
Just type trickle down economics into the search bar. And
since I said search bar's time for listener mail, I'm
gonna call this one. The waiting is the hardest part. Hey, guys,
just found your podcast a few months ago and I
love it. Um. The reason I'm thanking you is because
I have a bit of a worrying problem. I just

(40:09):
sent out my application to dental school and now I'm
playing the waiting game. Through my waiting, I always find
myself worrying and wondering what could happen, even though I
know it's not the best thing for me. Through my
long days at work this summer, listening to you guys
really helps me, uh not only take my mind off
the process, but helps take the bite off my worrying
mind and even makes me laugh out loud while people

(40:31):
look at me like I'm on crack, which, by the way,
I know all about through your crack podcast. That was
a good one. Um. So thanks for what you do.
You're informative and your humorous podcast makes my day easier,
helps me through the waiting game, and teaches me so
much about what I do not know. By the way,
I know it's a long shot, but if by any
chance you read this on listener mail, please give a

(40:53):
shout out to my fiance Elizabeth. We have less than
a year before a big day. And that is from
Kay of Davis Indicator. I n is that Indiana? Yes?
So Caleb was just making sure there wasn't some new
state I didn't know about Indo Ho. Yes, um so
Caleb and Elizabeth from Indo HO. Congratulations and Caleb, I

(41:17):
hope you get into a dental school. My friend, Uh
follow up with us, does it? Caleb bright Ess frequently.
Is that the Caleb I'm thinking of? No, that is
not you're thinking of the Caleb that won our contest
and at lunch with us? Is that the same Caleb
that writes us sometimes follows us on Twitter? Yeah? I
think so? Oh hey, what's well? We're gonna say uslast night?
I don't remember well at any rate. Thanks to all

(41:39):
the Caleb's out there who listen, We appreciate you. All right. Uh,
if you're named Caleb, or even if you're not, and
you want to get in touch of this, you can
tweet to us at s y s K podcast. You
can join us on our Facebook page. It's Facebook dot
com slash stuff you Should Know. You can send us
an email to Stuff Podcast at how stuff Works dot
com and join us that are home on the web

(42:01):
the beautiful Stuff you Should Know dot com. For more
on this and thousands of other topics, visit how stuff
Works dot com.