Yet the 2006 tax cut also increased the standard deduction. This eliminated income taxes for some 45,000 moderateincome families and lowered taxes for Oklahomans at all income levels.
At the time, lawmakers wanted to make sure tax reduction was both bottom-up and top-down. By contrast, the current governor and Legislature have pushed tax cuts that are entirely top-down. The cut approved this year provides no tax reduction for 43 percent of Oklahomans, and middle-income families will receive just $39 on average. Meanwhile, almost three-fourths of the total tax cut will go to the wealthiest fifth of households.
When confronted with this data, lawmakers retreated to the theory of “trickle-down economics” — the idea that boosting incentives for wealthy business people (“job creators”) is the best way to grow the economy for all.
The trickle-down theory is still popular with politicians, even though it has been repeatedly contradicted by empirical evidence and the historical record.
Middle-class incomes have stagnated, and the share of national income going to employee compensation has plummeted, even as corporate profits are at an all-time high. Excessive tax cuts have left us with deficits, a weakened safety net and a hollowed-out middle class.
One reason for trickle-down’s longevity may be the absence of a simple alternative. A recent symposium in Democracy Journal seeks to fill this gap. In a series of articles, the authors outline a platform of “middle-out” economics, based on the fact that middle-class consumer demand is a much greater driver of business expansion than wealth at the top.
The basic reasoning is simple: a successful business will only hire more workers and increase production when people are able to buy what the business wants to sell. That demand won’t continue if the average American can’t obtain the skills, opportunities and, ultimately, good wages to keep up this “virtuous cycle.”
Middle-out economics also recognizes that the most important “capital” for capitalism is the human kind. The economy does better when more Americans have resources like education, health security and purchasing power to participate to their fullest potential, whether as a worker, small business owner or corporate executive.
A middle-out policy agenda could include expanding access to paid time off and family leave, tax reforms to restore the balance between employee compensation and corporate profits and a minimum wage increase to reflect worker productivity gains.
It could include higher education reforms to train more workers for “middle-skill” jobs that require more than a high-school diploma but less than a bachelor’s degree.
Altogether, middle-out economics combines a simple message with a coherent policy agenda that matches American values, and economic reality, much better than the trickle-down alternative.
Perry is a policy analyst with the Oklahoma Policy Institute, a think tank based in Tulsa.
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