الرئيسية / أخبار عالمية / Trickle-down theory Comparative study between Egypt & America
Trickle-down theory Comparative study between Egypt & America
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Trickle-down theory Comparative study between Egypt & America

Democratic Arab Center 

 :By 
KhalidMustafa nor eldeen
 Soad Abd Elhady Ragab
Mahmoud Reda Mohamed
Manar Mahmoud Eid
Nermeen Hamed Abd Elftah
Supervisor :D/Abd ElMonem lofty

Introduction&Motivation:

Trickle-down economics, or “trickle-down theory,” argues for income and capital gains tax breaks or other financial benefits to large businesses, investors and entrepreneurs in order to stimulate economic growth by achieving greater employment and income for all people and boost standards of living as workers will spend their wages driving demand so benefits will trickle down to the poor. The argument hinges on two assumptions: all members of society benefit from growth; and growth is most likely to come from those with the resources and skills to increase productive output, soThe Trickle-down Theory is an economic theory that focuses on taking care of the “top” and they will take care of the “bottom”.

This theory assumes that the successful people in the economy are the business owners, investors, and savers. So when they get tax cuts they use the money to expand their companies by investing in business or put into savings to be able to lend the money.

The result is that the theory assumes that they hire more workers for their business and then the workers spend their money driving demand which then will lead to a growing economy.

The theory had been applied in America in different periods from the beginning of the rule of the president Calvin ( 1923 – 1929 )then president Regan (1981 – 1989 ) who was the most supporter for the theory and then Bush also supported it.

After that president Obama (2009 – 2017 )was against the theory.

But the current indicators for president Trump showed that he supports businessmen intervention to dominate the country’s economy.

And in Egypt the theory applied in Mubarak’s period specially Nazif’s government

So we will analyze the applying of the theory in America and Egypt to determine if it had succeeded or not and how to improve it.

Research problem:

Is the theory succeeded to improve the poor conditions?.

Literature review:

(1)Americans have seen income inequality rise over the past few decades, yet contrary to long-held trickle-down beliefs that rising inequality is not broadly benefiting society by bringing with it stronger economic growth. The research presented here demonstrates that inequality is not necessary for sustained economic growth and that inequality may actually dampen growth.(Mayerson, andOlinsky 2013)

………………………………………………..

(2)Ronald Reagan’s theory was really ‘trickle down’ economics borrowed from the Republican 1920s (Harding-Coolidge-Hoover) and renamed ‘supply side.’ Cut tax rates for the wealthy; everyone else will benefit. As Reagan’s budget director David Stockman confided to me at the time, the supply-side rhetoric ‘was always a Trojan horse to bring down the top rate.’ Many middle-class and poor citizens figured it out, even if reporters did not. (Greider,2000)

…………………………………………………………………………………

(3)Trickle-down economics — the idea that tax cuts and other financial incentives for companies and individuals in the upper tiers of society fuel growth that indirectly benefits everyone — has been a cornerstone of Republican domestic policy since the Reagan era. This general notion is quite pervasive, however, and didn’t start in the 1980s. The writer and comedian Will Rogers noted that the Hoover Administration was handing out money to the rich in hopes that it would eventually “trickle down to the needy.” The proverb, “a rising tide lifts all boats,” which John F. Kennedy used in a 1963 speech, is sometimes invoked to get across a similar idea — namely, that economic growth will help everyone, regardless of whether he has a 100-foot yacht or a dinghy.

“Those old clichés have recently been called into question, because little money seems to be trickling down and most growth has been at the top,” says Harvard Kennedy School Professor Christopher Jencks. “The question is whether people at the bottom get any lift at all. Even if the rich get most of the money, you still might want to consider a policy if everybody is going to get more than they would have gotten otherwise.” And that, indeed, is the subject of a paper Jencks wrote with Dan Andrews and Andrew Leigh.

The paper’s central question can be put another way: Is it better to grow slowly and equally or rapidly and unequally? “The conservative argument holds that rapidly and unequally is better over the long run because of compound interest,” explains Jencks. “Even growth as little as 0.1 percent per year can add up over the course of many decades.”

Andrews, Leigh, and Jencks looked at one parameter in particular —“income inequality,” expressed in terms of the share of total income held by the population’s richest 10 percent (“Top10Share”). One reason for framing the problem that way “is because the political debate has been focused on shares,” says Jencks. “The complaint is that the rich are getting more than their fair share of the pie, not that they’re eating too much pie in general.”(Jencks Christopher, Wiener Malcolm,2009)

Methodology:

We use comparative study to show the impact of trickle-down theory on the poor in America comparing with Egypt, by analyzing the data of some Economic indicators.

Section 1: – appearance of the theory in America

[1]   When we talk about trickle-down economics we will know that it began with a joke, when the American humorist “wills roger” mocked president Herbert hoovers, Depression-era recovery efforts saying that “money was all appropriated for the top in the hope it would trickle down to the needy, Mr. Hoover didn’t know that money trickled up.Give it to the people at the bottom and the people at the top will have it before night, anyhow, but it will at least passed through the poor fellow’s hands”

[2]So, trickle down shows that if businessmen and investors gain increase in salary, so everyone will benefit because investors will trickle their higher income to the employers

And so to all actions in society, so it assumes investors and company owners are the real drivers of growth and they use any extra cash from tax cuts to expand business growth and Investors buy more companies or stocks.

So, the basic element of trickle-down effect is income tax cuts.

The argument shows that when investor’s income increase by tax cut this will increase their spending and create additional demand in the economy and this creates jobs and higher ways for all workers.

Increasing profits for investors may be reinvested into more projects and this lead to higher growth, wages and income.

If high income earners see an increase in disposable income, they willincrease their spending and this creates additional demand in the economy,this higher level of aggregate demand creates jobs and higher wages for all workers. Alternatively, increased profits for firmsmay be reinvested into expanding output. This again leads to higher growth, wages and incomes for all. Lower income taxes increase theincentive to for people to work leading to higher productivity and economic growth

This can also be explained by the Laffer curve which developed by Arthur B.laffer in1979.

Laffer curve shows how changes in tax rates affect government revenue. This happens by two ways:-

One is immediately which is every dollar in tax cut translates directly to less dollar in government revenue.

The other effect is longer term shows that lower tax rates puts money into the hands of the investors who then spend it , this boost economic growth and replace any revenue lost From the tax cut Asshowing in the curve , zero tax results in nongovernment income and in the beginning Raising taxes still does a good job and increase revenue When the government reach the prohibitive range increase in tax cause revenue to reduce and when tax rate is 100% then government revenue is zero as investors have no incentive To work, so the tax basic disappears[3]

Source:Arthur B.laffer

Section 2 :- the application of theory in America

Herbert Hoover (1929-1933):[4]

Herbert Hooverbelieved in the Trickle Down theory and this could be a reason why the Great Depression started in America.

All of the poor people were suffering and the wealthy was just putting their extra money into the stock market to get more money instead of hiring more workers for their business.

The unemployment rates rose by 3% in 1929 to reach 25% in 1933and the growth rate fell by 54% of its level.[5]

So the next presidents used different theories of the economic like Keynesianism until 1981.

[6]Ronald Regan (1981-1989):

Ronald Reagan’s theory was really ‘trickle down’ economics borrowed from the Republican 1920s (Harding-Coolidge-Hoover) and renamed ‘supply side.’ Cut tax rates for the wealthy; everyone else will benefit. As Reagan’s budget director David Stockman confided to me at the time, the supply-side rhetoric ‘was always a Trojan horse to bring down the top rate.’ Many middle-class and poor citizens figured it out, even if reporters did not.

Reaganomics

According to this theory when the government policies favor the wealthy –for example, via tax cuts for upper income classes- the increase in wealth [7]flows down to those with lower incomes. That because the rich are more likely to spend the additional income, creating more economic activity.

Is President Ronald argon’s conservative economic policy that attacked the 1980 recession?

During the campaign of 1980 Ronald Reagan announced a plan to fix the nation’s economic as sure as Reagan, but they did approve a 25% cut during Reagan’s first term. At this point, Reagan would change strategy. He would blame the U.S. Congress for the record deficits that accrued during his years in office. Reagan would say that Congress was responsible, because Congress did not slash spending enough — meaning social spending, since Reagan always championed increased military spending.

This new spending would encourage the economy and create new jobs. Reagan believed that a tax cut of this nature would generate more revenue for the federal government.

At the same time Reagan also battled stagflation. That’s an economic contraction combined with double digit inflation.

What did Reagan economic do?

Reaganomics promised to reduce the government’s influence on the economy that policy was dramatically different from the status quo. President Johnson and Nixon expanded the government’s role.

Reagan pledged to cut for areas:

1-The growth of government spending.

2-Both income and capital gains taxes.

3-Regulation.

4-The expansion of the money supply.

[8]Reaganomics grew from the theory of supply side economics. It states that corporate tax cuts gives companies more cash. With it, they hire new workers and expand their businesses.

Income tax cuts give workers more incentive to work, increasing the supply of labor. The resultant economic growth expands the tax base over time that replaces the government revenue lost from tax cuts.

Did it work?

The results of this plan were mixed:

Initially, this caused deep recession in 1981 and 1982. The high interest rates caused the value of dollar to rise on the international exchange market, American goods more expensive abroad. As a result, exports decreased while imports increased.

Economists disagreed over the achievements of ergonomics. Tax cuts plus increased military spending would cost the federal governments trillions of dollars. Reagan advocated paying for these expenses by slashing government programs.

President Reagan delivered on each of his four major policy objectives. Although not to expand that he and his supporters have hoped that’s according to William A. Insane a founder of Reaganomics Insane belonged to Reagan’s council of economic advisers from 1981 to 1985.

Inflation was tamed but it was thanks to monetary policy not fiscal policy.

Reagan’s tax cuts did end the recession but the government spending was lowered.

Reagan’s tax cuts did end recession but the government spending wasn’t lowered, just shifted from domestic programs to defense.

The federal debt also tripled from 997$ billion in 1981 to 2.857$ in 1989.

The top income tax rate was 28 percent for single people making 18.550$ or more, any one making less paid no taxes at all. That was much less than [9]1980 top tax rate of 70 percent for the individuals earning 108,000$ or more. He made certain tax brackets were indexed for inflation source historical tax rates “tax foundation “.

Regan had to offset these tax cuts with several increases. He raised social security payroll taxes and some excise taxes, he also cut several deductions.

The corporate tax rate was also cut from 46 percent but the effect of this break was unclear. Reagan changed the tax treatment of many new investments. The complexity meant that the overall results of his corporate tax changes couldn’t be measured.

Government spending growth still grew; just not as fast as under president carter Reagan increased spending by 2.5 percent a year mostly for defense.

Reagan didn’t cut social security or Medicare payments at all. In fact Reagan’s budget was 22 percent of gross domestic product.

Nevertheless, the growth in spending was less than president carter 4 percent annual increase.

Reagan eliminated the Nixon era price controls on domestic oil and gas in 1981. These constrained the free market equilibrium that would have prevented inflation.

Reagan also removed controls on cable TV, long distance telephone service and ocean shipping. He eased bank regulations, helping to create the savings and loan crisis of 1989.

Reagan increased not decreased import barriers; he doubled the number of items that were subject to trade restraint from 12 percent in 1980 to 23 percent in 1988 he did little to reduce other regulations affecting health, safety and environment.

When America was in a recession during Reagan’s first term so he implemented Trickle-down Theory that cut taxes for the rich and cut programs for the poor and middle class and yet the economy boomed under him especially in the second term.

[10]The top tax rate fell from 70% (for those earning $108,000 or more) to 28%. The corporate tax rate was also cut, from 46% to 40%.

He also increased government spending by 2.5% a year. He almost tripled the Federal debt. It grew from $997 billion in 1981 to $2.85 trillion in 1989.

At the same time, the Federal Reserve lowered the Fed funds rate from 6% to 1% during this same period.

Trickle Down has achieved the recovery of the national economy and flourished manufacturing and export.

But Trickle-down economics says that Reagan’s lower tax rates should have helped all income levels. In fact, the exact opposite occurred.

Income inequality worsened. Between 1979 and 2005, after-tax household income rose 6% for the bottom fifth. That sounds great until you see what happened for the top fifth — an 80% increase in income. The top 1% saw their income triple. Instead of trickling down, it appears that prosperity trickled up.

The rate of inflation was 13% when Regan took but dropped to 11% in 1986.

And the unemployment rate was 10.8% but dropped to 5.3% and it’s the highest level in the US.

The period of Reagan considered the best periods experienced by the US in terms of low inflation and unemployment rates and higher production rates, growth and wages.

The debt in the Reagan period from 1979 to 1989:-

The debt increase from 35% to 55% in the Reagan period[11]

George W. Bush(2001-2009):[12]

When George W. Bush entered the White House in 2001 he too believed in Trickle Down Theory to end the 2001 recession, President George W. Bush cut income taxes with JGTRRA. That ended the recession by November of that year.

Under George W. Bush, government spending on publicly owned projects – roads, ports, bridges – was to be kept at a minimum or left to local governments, except for military projects for the sake of national security.

[13] In 2003, President Bush signed into law a tax plan designed to reduce taxes and stimulate economic growth. The act reduced the long-term individual income tax rate on capital gains to 15 percent, and it   reduced the amount of tax paid by investors on dividends and capital gains.

Bush’s trickle down and tax cut of 2003 with having triggered an “economic boom.” In 2005 he called it” the Bush boom”.

The budget deficit returned. By late October, 2008, it was around 2.7 percent of GDP. Military spending was a little more than 4 percent of GDP. Interest on the national debt for 2008 was rising to more than $500 billion. Military expenditures for the year were to be a little more than $600 billion, and health and human services a little more than 700 billion.

By September 2008 the national debt had risen to around 70 percent of GDP.[14]

The US was described as entering a new era. There had been decades of trade imbalance, with China among others buying up US assets and sitting on piles of US currency.

The rate of inflation decreased by 3% but lately increased.

The rate of unemployment increased to reach 6%.

That theorydon’t get its goals but Infuriating people because low interest rate and low wages rate.

[15]International Monetary Fund argues that there is no trickle-down effect as the rich get richer:

The income share of the top 20 percent (the rich) increases, then GDP growth actually declines over the medium term, suggesting that the benefits do not trickle down. In contrast, an increase in the income share of the bottom 20 percent (the poor) is associated with higher GDP growth.

The United States ranks highest in income inequality on all three inequality indicators he uses. On the 90-10 ratio—the income received at the 90th percentile to the 10th percentile of the income distribution— there was a noticeable rise in U.S. inequality over time, with the ratio rising from 4.9 during the period from 1980 to 1985 to 5.65 during the period from 2005 to 2008

[16]Figure 2, reproduced from Howell’s paper, tracks the share of national income held by the top 1 percent, 5 percent, and middle 60 percent since 1967. It is clear that those shares were stable from 1967 to 1980 but changed abruptly so that from 1980 to 2006, the middle 60 percent’s share fell by 11 percent, the top 5 percent’s share rose by 35 percent, and the top 1 percent’s share rose by 120 percent

By analyzing the data during the period from 2011 to 2014 we found that 10% of the top increased in fiscal income by 2% unlike 2011.

And 40% of the middle increased only about 1% unlike 2011.

50% of the bottom continued in decreased to reach 1% unlike 2011.

A 2015 report on policy by economist described the failings of increasing economic gains of rich without commensurate participation by the working and middle classes, referring to the problematic policies as, “Reagan-style trickle-down economics,” and “a trickle-down, financial-sector-driven policy regime.

[17]

Despite its shortcomings, Republicans use trickle-down economics to guide policy. In 2016, Republican Presidential candidate Donald Trump proposed cutting taxes for the wealthy. He also wants to end taxes on capital gains and dividends for everyone making less than $50,000 a year.

Trump would lower the corporate tax rate to attract more corporations.  He said it would boost growth enough to make up for the debt increase.

Section 3:- the application in Egypt

Trickle-down theory in Egypt

Mohamed Anwar El Sadat (1970_1981):[18]

The Egyptian economy continued to flourish but did not last long where economic openness came in 1974 and the liberalization of the market, the removal of subsidies and the adoption of a package of economic laws, like “Law 118 for the year 1975 for import and export, foreign exchange law No. 97 of 1976 and Law No. 43 of 1974 and its special modifications that opening of the door of the Egyptian economy to Arab and foreign capital in the form of direct investment in almost all fields.” Trade and payment agreements, which led to the transition to the practice of foreign trade on the basis of free transactions, all these privileges to encourage foreign direct investment in Egypt so as to increase employment opportunities and unemployment disappears to help the lower classes in society that is the Trickle Down Theory.

But the result of the policy of economic openness was not satisfactory, this led to distorting the Egyptian economy and deepens social divisions and the appearance of the rich class, which amounted to 500 millionaires at the end of 1976 and increased the rate of unemployment and rate of inflation, was very large.

After that Egypt adopted the theories of economic reform based on adaptation sponsored by the World Bank and focuses on privatizing the public sector and selling and disposal.

Mubarak era:

President Mubarak started reforms in the early 2004 when the government of technocrats and businessmen rose to power and simplified and reduced taxes and tariffs and made economic legislation designed to foster economic growth[19].

These reforms had achieved some benefits so, GDP increased with almost 7% between 2005 and 2008, but it decreased below 5% when the economic crisis happened. But according to a 2010 IMF report, these reforms since 2004 achieved benefits as[20]:

It had reduced fiscal, monetary and external disadvantages –

– also it improved the investment climate as investors’ confidence in Egypt and the need for risk increased since 2009 as FDI increased from $2.1 billion in 2003/2004 to $13 billion in 2007/2008

– Stock market flourished pushing growth rates from 4.1% in 2004 to 7.2% in 2008

[21]– tax revenues doubled through the same period and the fiscal deficit decreased from 10.2% to 6.6% .

Also according to the World Bank report about the ”reform path” began in 2004, it argued that these reforms considered as one of the best economic reforms in the Middle East and North Africa

Also officials impressed by Mubarak policies for its business-friendly policies such as lowering personal and corporate tax rates by half andcut custom tariffs from 14.6% to 6.9%.

                                     Improvements didn’t trickle-down:

The Egyptian government like the US had cut interest rate to restart economic growth in the wake of the great depression but it was limited succeeded.

It is clear that there is a disproportion between the advancement in growth of GDP, FDI and the quality of life of citizens.

Despite the fact that the growth rate for the year 2007/2008 has reached 7.2% and FDI inflows exceeded $13.266 billion, the level of advancement in living standards, public services and other issues relating to the quality of life had not witnessed the same progress.

Moreover, according to the IMF, Egypt is the worst performer among 13 Middle Eastern countries in terms ofper capita GDP growth rates, as Egypt’s [22]average GDP per capita was little changed from $2.160 in 2009 compared with $2.155 in 1989.

So, Egypt’s main problem in recent years has been the unfair distribution of wealth which if concentrated with the upper class of businessmen.

About 18% of Egyptians live below the poverty line in 2006.

The strategic economic trends report – issued by Al-Ahram Centre for political and strategic studies – showed that Nazif government policies were the reason for inequality as in Egypt most of the tax burden at 28% is shouldered by workers while the companies pay 13.2 %.

Also, the energy subsidies are extended heavily to privately owned factories, while the subsidies given to the ration cards staples,which about 63 million Egyptians benefit from, are declining.

So we found that the theory of trickle down was failed as the result was a growth with low employment rate and the unemployment rate increased to 10%

We noted that the reason for the failure of trickle down is the distorted geographic distribution of investments.

During the period from 2000-2007, 30% of new investments were concentrated in Cairo and Giza, this was a major obstacle to the extension of the fruits of FDI to the rest of Egypt.

Also it has been proven that economic growth achieved during the period from 1982/1983-2006/2007 was created solely by capital accumulation, thus real enhancement of total factor productivity which occurs through widespread job creation was absent

Also the period from 2002/2003-2006/2007 we found that petroleum and energy sector, a capital intensive sector with minimal job creation attracted the largest amount of investment constituting 28% didn’t exceed 12.3% for the same period.

Other reason such as the rise of the informal sector and a scarcity of well-educated labor force were mentioned.

So, if only 10% of the labor force is capable of working in so-called modern economy while the rest is restricted to jobs with low levels of productivity and hence lower salaries, then the effects of the trickle down will remain withheld because even if the informal sector is capable of reducing unemployment to some extent, it will also fail to provide good jobs that reap the fruits of growth and investment.

Also,inflation was very high with rate of 12.8% in 2010 and corruption was intrusive .So there was no trickle down as Egyptians on the streets didn’t see benefits.

Unemployment rate:[23]

The unemployment rate increased from 2000\2002 to reach 15%, then it decreased in 2003 to reach 11% and still fluctuating until 2006 when it reached 10.49 % and then started to decrease in 2007\2008 to reach 8.7% and as a result of the world crisis the theory failed to achieve its goal and the unemployment then reached 9.38% in 2009 and in 2016 reached 12.01%

Unemployment, total (% of total labor force) YEARS
9 2000
9.26 2001
10.01 2002
11 2003
10.3 2004
11.2 2005
10.49 2006
8.8 2007
8.7 2008
9.38 2009
8.98 2010
12 2011
12.67 2012
13.21 2013
13.17 2014
12.84 2015
12.014 2016

 

[24]

Source\ the World Bank \ statistics of health, nutrition and population.

GDP growth rates:[25]

On the scope of economicgrowth, it witnessed a large decrease in 2000 in GDP growth rates

Until it started to increase in 2004 but it was increasing with slow rates until it reached a high rate in 2008 with 7.15% but it had quickly decreased in 2009 to 4.68 % and in 2015 reached 4.2%.

GDP growth (annual %) YEARS
5.36 2000
3.53 2001
2.37 2002
3.19 2003
4.09 2004
4.47

 

2005
6.84

 

2006
7.08

 

2007
7.15 2008
4.68 2009
5.13 2010
1.81 2011
2.19 2012
2.10 2013
2.22 2014
4.2 2015

 

[26]

Source \ the World Bank \ global development indicators \ GDP growth (annual %) in Egypt.

Government expenditure on education and health:

[27]The basis of applying the trickle-down theory in America was increasing expenditures on social sectors like education and health.

But according to the published rates in the final accounts for the ministry of finance, the expenditure on education decreased from 16.7% in 2000\2001 to reach 11.3% in 2009\2010 and reached 12% in 2014/2015

And on the scope of health, the expenditure decreased from 6.2% to reach 4.5% in 2009\2010 and increased to 5.37% in 2014/2015.

 

Health expenditure/public expenditure % Education expenditure/public expenditure % Years
6.2 16.7 2000-2001
4.5 16 2005-2006
4.5 11.3 2009-2010
4.52 11.9 2013-2014
5.37 12 2014=2015

Source: EGYPT – the ministry of finance –final accounts for the public budget

Source: Source: EGYPT – the ministry of finance –final accounts for the public budget

Tax revenue:[28]

In Egypt, tax revenue rates increased from 2003 to 2006 to reach 15.82 % but in 2007\2008 it started to decrease after 2009 to reach 14.13 % in 2010 after 15.82 % in 2006 and reduced to 13.16 % in 2012.

Tax revenue (% of GDP)

 

YEARS
13.40 2002
13.34 2003
13.83 2004
14.06 2005
15.82 2006
15.34 2007
15.32 2008
15.66 2009
14.13 2010
14.00 2011
13.16

 

2012

 

[29]The poverty rates development in Egypt from 1990-2014 to showing how the theory benefits the poor

              

Section 4 :- Criticism of trickle-down theory

As we mentioned that trickle-down theory assumed to cut tax for the rich in hope it will benefit the poor by improving the standard living for the working class but as we concluded that :

1-High income earners have a high marginal propensity to save.[30] Therefore, the increased disposable income from a tax cut does not filter into other sections of the economy because it is saved not spent.

2-so, higher incomes may be used to accumulate wealth; this wealth accumulation leads to further capital gains and income from assets – leading to even higher levels of income and wealth inequality.

3-Budget deficit: Cutting taxes in the US, led to an increase in the budget deficit. (From 2.7% of GDP in 1980 to 6% of GDP in 1983) Although, this provides a temporary fiscal boost, a budget deficit creates problems for the future economy.

4-Wrong target: If you want to reduce relative poverty, it makes sense to target income tax cuts and benefits at those who need it. Cutting taxes for the rich, in the hope some may trickle down to the poorest is a very inefficient way of working.

5-Cutting taxes does not necessarily increase incentives to work (both the substitution and income effect are at work and may cancel each other out)

It was hoped cutting income tax would encourage people to work overtime and work more hours. But in practice, this didn’t occur as trickle-down economics will lead to increasing levels of inequality;tax cuts for the rich do not result in more economic activity, but create a growing income gap between those at the top and those at the bottom. The rich tend to save more of their disposable income and growth slows down.

The researchers calculated that when the richest 20% of society increase their income by one percentage point, the annual rate of growth decreased by nearly 0.1% within five years.

This shows that “the benefits do not trickle down,”

By contrast, when the lowest 20% of earners see their income grow by one percentage point, the rate of growth increases by nearly 0.4% over the same period.

This shape showed that the trickle-down effect between the reality and the theory:-[31] 

Conclusion

Overall, data from the past 50 years strongly refutes any arguments that cutting taxes for the richest Americans will improve the economic standing of the lower and middle classes or the nation as a whole.

However, what any study does show is that any attempt to stimulate economic growth by cutting taxes for the rich will do nothing, it hasn’t worked over the past 50 years, so why would it work in the future?

To put it simply and bluntly, Bush’s top-bracket tax cut is an ineffective attempt at stimulus that will not cause any growth unless, of course, if we’re talking about the size of the deficit.

While putting the theory, the application showed slow growth indicators during the period from 2000 to 2010 and showed increase in indicators of poverty, inequality between classes and control of businessmen on the outlets of the economy. 

Recommendations:-

  • It may be better to cut taxes for low-income investors with small and medium projects to apply the theory from the bottom to up and increase projects and improve living standards instead of capital accumulation
  • The government should adopt the theory of bottom up :-

That theory goes like if employees are paid more and their benefits are great they are more productive and more creative, thus making the company more profitable and competitive and this is the better for our overall economy.

That theory used in a variety of fields including software, humanistic and scientific theories and management and organization.

  • Taxes that have been cut should go to poor people through education services or health care services.
  • Also to get rid of poverty we can provide unemployed people with monthly salary to suffice their major needs.
  • Also after removing subsidy from energy sector we can use money to increase subsidy of food products to reduce poverty.

References:-

Books:-

  • HackeJacob S., Winner-Take-All Politics: How Washington Made the Rich Richer–and Turned Its Back on the Middle Class Paperback – March 15, 2011
  • Ladenburg, Thomas ,Critical Issues and Simulations Units in American History ,digitagalhistory.uh.edu, United States / 2007.

§  Niskanen William, Reaganomics: An Insider’s Account of the Policies and the People ,Library of Economics and Liberty, united states ,June 2, 1988

  • Sowell,trickle-down theory and tax cuts for rich ,1/9/2012, hoover institution ,IS BN-10:0817916159

Researches :-

  • Aghion,Bolton,theory of trickle down growth and development, the review of economic studies limited ,feb 2005
  • Amadeo, Kimberly, what is the Laffer curve? Explanation why tax cuts no longer work, 20 January 2017.the balance.
  • Andersson , Fredrik A Trickle-Down Theory of Incentives with Applications to Privatization and Outsourcing IFN Working Paper No. 784, 2009
  • Christopher Jencks, Malcolm Wiener,Do Rising Top Incomes Lift All Boats?, Harvard Kennedy School,2009
  • Enders Klaus, International Monetary Fund (2008, February 13). Egypt Reforms Trigger Economic Growth. Retrieved from http://www.imf.org/external/pubs/ft/survey/so/2008/car021308a.htm.
  • Greider, “The Gripper’s Economy, October 2000
  • Mayerson,andOlinsky,Trickle-Down Economics and Broken Promises How Inequality Is Holding Back Our, center for America progress EconomyDecember 4, 2013
  • Manuel,trevor,finding the right path septemr 2003
  • Norris, Kochhar, Suphaphiphat, Ricka, Tsou Causes and Consequences of Income Inequality: A Global Perspective,imf staff discussion note  1/2015
  • Steven Greenhouse, The Big Squeeze
  • SeifAllah Rabie, Chronicles co-editor, EBHRC ,RISING FOREIGN DIRECT INVESTMENT (FDI) &ECONOMIC GROWTH rates. Why Are We Not Feeling it?
  • Norton ,ECONOMIC GROWTH AND POVERTY: IN SEARCH OF TRICKLE-DOWN

Journals :-

  • Al-Imam Mohamed , the relationship between support and openness and economic reform , shorouknews ,Monday 27/4/2015 9.10 AMhttp://www.shorouknews.com/columns/view.aspx?cdate=27042015&id=3202eed9-0fbf-4b46-b7b4-d745932fdc5f
  • Ben Chu, The wealth that failed to trickle down: The rich do get richer while poor stay poor, report suggests, independent,
    Monday 19 January 2015 23:51 GMT
  • Gallagher Chuck /BLOG/The Great American Ponzi Scheme! Is Bernie Madoff any different than our Government? :http://www.chuckgallagher.com/category/national-debt
  • JONATHAN BERR, AOL.COM,Hosni Mubarak’s Economic Achievements Feb 10th 2011 10:00PM https://www.aol.com/article/2011/02/10/hosni-mubaraks-economic-achievements/19838632
  • Pettinger, Tejvan,Trickle-down economics, http://www.economicshelp.org,December 9, 2014
  • Margo, Robert A, employment and unemployment in the 1930s , journal of economic perspectives
  • Pettinger,tejvan.trickle-down economics,9december 2014 ,economic help 

Formal reports:-

  • Average annual percent growth in U.S. GDP per capita, by top marginal income tax rate, 1914-2010. , Maddison Project and the Tax Policy Center
  • Central agency for public mobilization and statistics /research about income, expenditure and consumption
  • EGYPT – the ministry of finance –final accounts for the public budget
  • For the series, U.S. Census Bureau, “Top 5 Percent and the Middle Class, 2012,” Table H-2. The top 1 percent series is taken from the World Top Incomes Database, or WTID. All three series are indexed to 100 in 1980.
  • The world bank /TAX.TOTL.GD.ZS
  • The World Bank \ statistics of health, nutrition and population. From 2000 to 2016
  • The World Bank \ global development indicators \ GDP growth (annual %) in Egypt
  • The World Bank \ statistics of health, nutrition and population
  • Us office of management and budget, historical tables, annual

Web Sites:-

[1]E.gill,Kathy,will rogers on trickle up economics,30 January 2015 , wired pen

[2]Pettinger,tejvan.trickle-down economics,9december 2014 ,economic help

[3]Amadeo, Kimberly, what is the Laffer curve? explanation why tax cuts no longer work ,20 January 2017.the balance

[4]Ladenburg, Thomas /digital history /chapter 7 /page 31

[5]Margo, Robert A, employment and unemployment in the 1930s , journal of economic perspectives

[6]Sowell Thomas ,Trickle Down” Theory and “Tax Cuts for the Rich”

HOOVER INSTITUTION PRESS STANFORD UNIVERSITY STANFORD, CALIFORNIA

[7]Previous references

[8]Previous references

[9]Previous references

[10]Previous references

[11]Us office of management and budget, historical tables, annul

[12]

[13]Steven Greenhouse, the Big Squeeze.

[14]Niskanen William, Reaganomics: An Insider’s Account of the Policies and the People ,Library of Economics and Liberty, united states ,June 2, 1988

[15]Olinsky and Mayerson/ Trickle-Down Economics  and Broken Promises How Inequality Is Holding Back Our Economy , center for American progress ,December 4, 2013

[16]Source: For the series, U.S. Census Bureau, “Top 5 Percent and the Middle Class, 2012,” Table H-2. The top 1 percent series is taken from the World Top Incomes Database, or WTID. All three series are indexed to 100 in 1980..

[17]Gallagher Chuck /BLOG/The Great American Ponzi Scheme! Is Bernie Madoff any different than our Government? :-http://www.chuckgallagher.com/category/national-debt/

[18]DRMohammed Mahmoud Al-Imam, former Minister of Planning, the relationship between support and openness and economic reform

[19]SeifAllahRabie, Chronicles co-editor, EBHRC ,RISING FOREIGN DIRECT INVESTMENT (FDI) &ECONOMIC GROWTH rates. Why Are We Not Feeling it?

[20]Enders Klaus,International Monetary Fund (2008, February 13). Egypt Reforms Trigger Economic Growth. Retrieved from http://www.imf.org/external/pubs/ft/survey/so/2008/car021308a.htm.

[21]JONATHAN BERR, AOL.COM,Hosni Mubarak’s Economic Achievements Feb 10th 2011 10:00PMhttps://www.aol.com/article/2011/02/10/hosni-mubaraks-economic-achievements/19838632/

[22]Previous references

[23]the World Bank \ statistics of health, nutrition and population

[24]Source\ the World Bank \ statistics of health, nutrition and population. From 2000 to 2016

[25]Source \ the World Bank \ global development indicators \ GDP growth (annual %) in Egypt.

[26]Previous reference

[27]Source: EGYPT – the ministry of finance –final accounts for the public budget

[28]The world bank /GC.TAX.TOTL.GD.ZS

[29]Central agency for public mobilization and statistics /research about income, expenditure and consumption

[30]Pettinger, Tejvan,Trickle-down economics, http://www.economicshelp.org,December 9, 2014

[31]Ben Chu, The wealth that failed to trickle down: The rich do get richer while poor stay poor, report suggests, independent,
Monday 19 January 2015 23:51 GMT

 

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