"Trickle down" is supposed to occur under the Republican economic scheme. The general theory is that by cutting taxes on corporations and the wealthy, these entities will in turn pass these increases onto the little people of the economy. For example, the government cuts corporate taxes by 5%. Corporations are supposed to pass these increases onto employees in the form of higher wages.
There is one problem. It's not working like that. The money is staying in the upper levels of income holders.
According to the latest
Flow of Funds report, national income was 8.9 trillion in 2001 and corporate profits were 767 billion, or 8.6% of national income. In the third quarter of 2005, annualized national income was 10.7 trillion and annualized corporate profits were 1.3 trillion or 12% of national income. So, corporations are taking a larger percentage of national income.
But corporations are not trickling down their bounty. In 2001, employee compensation was 66.3% of national income and 66.1% of national income in the third quarter of 2005. So, employees are essentially getting the same amount of the national income pie.
Perhaps just as telling, corporations are the only economic group that is actually saving money. Undistributed corporate profits increased from 192 billion in 2001 to 418 billion in the third quarter of 2005. Over the same period of time, person savings have decreased from 132 billion to a negative 132 billion.
Here are the harder facts: non-supervisory wages are stagnant after inflation for the last 5 years. (OK, they have risen...by .5% over 5 years). According to the census bureau, national median income dropped for 2001 and 2002 and was unchanged thereafter. The poverty rate is up over the same period. That does not sound like much trickling down to me.
If you think of the economy as a flow-through diagram, with profits going from consumers to corporations back to workers, you will notice something disturbing: the gains from this recovery's consumer spending are stopping at the corporate level. This is the actual effect of the massive capital gains and dividend tax cuts enacted by the Republicans. Instead of passing the increased savings onto employees, the gains are instead going to shareholders.
Update [2005-12-12 9:55:25 by bonddad]: Mz Kleen posted this editorial from the NYTimes in a comment below. It is a great summation of the basic problem.
Even as consumers are driving the economy and spending money they do not have in this holiday season, American businesses are sitting on hoards of cash. The best idea the corporate chieftains can come up with is to write dividend checks and buy up their own shares in record quantities. That's money in the pockets of wealthy investors. It's also more of the kind of short-term thinking this country can ill afford in an era of global competition. Instead, more should be invested in the future health of those same businesses.
