Fletcher in the News

Foreign Experiments With Trickle-Down Tax Cuts: Prof. Klein Weighs in on PRI's The World

The tax reform in Washington is the latest experiment with trickle-down economics — the idea that if you target tax cuts toward the wealthy, money will trickle down and all will prosper. It's commonly associated with supply-side economics.

Kansas recently experimented with it and the results weren't good — growth lagged, tax revenues fell and the state had to cut spending on education and infrastructure projects. The state legislature ultimately reversed course and raised taxes...

...“A rising dollar could provide a headwind to the economy,” said Michael Klein, an economist with the Fletcher School of Law and Diplomacy at Tufts University. Klein is also an executive editor of EconoFact, a web publication that analyzes economic social policies.

Klein explained that if the dollar gets stronger, it’s going to make it harder for American companies to export. “So this one goal [of the Trump administration] of having a lot of tax cuts is going to be at odds with another goal of trying to move the trade deficit closer to balance.”

And that means that tax cuts might not boost the economy quite the way Republicans are promising. Of those 38 economists, all of them said the current tax overhaul will make the long-term debt “substantially higher.”

Economists also warn that tax cuts that disproportionately favor the wealthy will also widen income inequality.

Given the academic research, many other economists say they feel ignored by Washington right now.

“It’s frustrating that the role of experts, people who have really thought about these things carefully, is down-weighted. And there’s a lot more consensus among economists about a lot of things than would generally be thought,” said Klein.