Trickle Down Theory: The Lie For Modern Capitalism

𝘎𝘰𝘷𝘦𝘳𝘯𝘮𝘦𝘯𝘵𝘴 𝘵𝘩𝘢𝘵 𝘤𝘶𝘵 𝘵𝘢𝘹𝘦𝘴 𝘧𝘰𝘳 𝘵𝘩𝘦 𝘳𝘪𝘤𝘩 𝘩𝘰𝘱𝘪𝘯𝘨 𝘵𝘩𝘦 𝘣𝘦𝘯𝘦𝘧𝘪𝘵𝘴 𝘸𝘰𝘶𝘭𝘥 “𝘵𝘳𝘪𝘤𝘬𝘭𝘦 𝘥𝘰𝘸𝘯” 𝘵𝘰 𝘰𝘳𝘥𝘪𝘯𝘢𝘳𝘺 𝘱𝘦𝘰𝘱𝘭𝘦 𝘮𝘢𝘥𝘦 𝘢 𝘤𝘭𝘦𝘢𝘳 𝘮𝘪𝘴𝘵𝘢𝘬𝘦.

Analysis: Bruce Alpine.

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n Aotearoa New Zealand this approach has been tried more than once, and it has not worked well for lower-income families. 

In the 1980s, under what became known as Rogernomics, the top personal tax rate was cut dramatically from 66 percent down to 33 percent. 

The government also introduced GST and reduced many other progressive elements of the tax system. 

The promise was straightforward: if high earners and businesses paid less tax, they would invest more, create jobs, expand the economy, and eventually lift living standards for everyone. 

What actually happened was very different. 

• Income inequality rose sharply. 

• The richest 1 percent roughly doubled their share of total income. 

• Many lower- and middle-income workers saw little improvement in real wages for long periods. 

• Unemployment climbed into double digits during the adjustment years. 

• The extra money generated by lower taxes stayed mostly with those who already had more. 

Aotearoa New Zealand’s ongoing tax settings have continued this pattern. 

Despite ongoing political debates mainly from opposition parties and repeated calls for reform from Economists, the country still does not have a broad capital gains tax or a wealth tax.

Most gains from rising house prices, shares, and other assets escape the progressive income tax system. 

People who own property or financial assets therefore capture a larger share of national wealth growth. 

Wage earners and renters, who make up a big part of lower socio-economic groups, receive far less of the benefit. 

At the same time they often face higher housing costs, which eat into any modest wage gains they do get.

Roger Douglas was the principal architect of the 1980s neoliberal reforms known as Rogernomics in Aotearoa. file.

The current National-led government has followed a milder version of the same thinking. 

Its tax relief package adjusted income tax thresholds and expanded some credits so that many working households received a small fortnightly boost. 

Higher-income households still received larger absolute dollar amounts. 

The package was paid for partly by cutting public spending and reducing the size of the public service. 

Economic growth has been modest, unemployment has risen, and wage growth for lower earners has remained limited. 

Public services that lower-income families rely on more heavily—health, education support, and community services—have come under pressure.

The core problem is simple and has been repeated. 

Cutting taxes for high earners and asset owners puts more money in their pockets first. 

There is no automatic process that forces that money to flow down as better pay, more secure jobs, or lower living costs for everyone else. 

Whether ordinary workers benefit depends on other factors: the strength of wages, the cost of housing, the quality of public services, and how much bargaining power lower-paid people have. 

When those factors are weak, the gains stay concentrated at the top. 

Aotearoa New Zealand’s record over the past forty years shows this clearly. 

The big tax cuts of the 1980s increased inequality without delivering broad, lasting gains for lower-income groups. 

The continued light taxation of capital has kept wealth growth skewed toward those who already own assets. 

Recent tax relief has given most households a small amount of extra cash while higher earners gained more and public spending was trimmed. 

Trickle-down is not working for the average Aotearoa New Zealander. 

The theory that is: 'Trickle-down' remains a myth.

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