Do tax cuts help the economy ?

In partnership with

Wall Street Can’t Hold a Note Like This

Streaming platforms pay billions in royalties.

JKBX (pronounced “Jukebox”) opens the door to invest in royalty shares of iconic songs, earning quarterly distributions tied to their performance.

This isn’t about fanfare—it’s about diversification. Music royalties offer a potential income stream tied to one thing people never stop doing: pressing play.

Build Your Portfolio with Music

Visit www.jkbx.com/legal/offering-circulars for important Reg A disclosures. This content is not investment advice, nor is it an offer of securities. All investments involve risk and may result in loss.

When President Ronald Reagan began his first term in 1981, the US economy was struggling. Unemployment rates were high and rising, and in 1979, inflation had peaked at an all-time high for peacetime. In an effort to combat these issues, Reagan's administration introduced a number of economic policies, including tax cuts for large corporations and high-income earners. The idea was that tax savings for the rich would cause extra money to trickle down to everyone else, and for that reason, these policies are often referred to as trickle-down economics. From the 1980s to the late 1990s, the US experienced one of its longest and strongest periods of economic growth in history. Median income rose, as did rates of job creation.

Since then, many politicians have invoked trickle-down theory as a justification for tax cuts—but did these policies actually work, either in the sense of stimulating economic growth or in terms of improving circumstances for Americans? Would they work in other circumstances? To answer these questions, it is important to consider whether the impact of the tax cut on the government’s tax revenue is harmful, whether the money saved in taxes actually stimulates the economy, and whether stimulating the economy improves people’s lives.

The idea behind tax cuts is that if taxes are too high, people will be less willing to work, which would ultimately decrease tax revenue. At a lower tax rate, the government might actually gain more tax money that it can theoretically use to improve life for its citizens because people will work more when they get to keep more of their earnings. Of course, there is a limit to how much the government can cut taxes—at a zero tax rate, there is no tax revenue, regardless of how much people are working. Therefore, while cuts from a very high tax rate might be beneficial, cuts from a lower tax rate might be counterproductive, hampering the government's ability to accomplish crucial goals.

Tax rates were extremely high when Reagan took office. His administration reduced the highest income tax bracket from 70% to 28% and the corporate tax rate from 48% to 34%. By comparison, as of early 2021, those rates were 37% and 21%, respectively. When tax rates are lower, tax cuts for the wealthy can be harmful. For example, in 2012–2013, lawmakers in Kansas cut the top tax rate by almost 30% and reduced some business tax rates to zero. As a result, the government’s balance sheet immediately fell into negative territory and did not recover, implying that wealthy individuals and companies did not reinvest back into the economy. In short, the money did not trickle down.

This trend appears consistent: a study by the London School of Economics, spanning multiple periods of history across 18 countries, found that cutting taxes increased the wealth of the top 1% but had little effect on the economy as a whole. For tax cuts for the wealthy to truly stimulate the economy, they would need to reinvest the saved money into areas such as local businesses, but this rarely happens in practice.

No economic policy operates in isolation. Each time and place is unique, with multiple policies in effect simultaneously, meaning there is only ever one test case for each set of scenarios. This makes it challenging to deliver definitive rulings on whether an economic policy worked, whether something else might have worked better, or whether it would work in a different situation. Despite this, rhetoric around trickle-down economics, both during the Reagan era and since, often promises something definitive: that spending by society’s richest members on things other than taxes directly improves the financial circumstances of the less wealthy. However, there is little evidence to support this claim.