I saw David Stockman being interviewed the other day. Well, like the rest of us, he has aged.
For those who don’t remember, Stockman was a Congressman when President Reagan tagged him to be his first Director of the Office of Management and Budget. Stockman was impressive. He knew the Federal Budget inside and out. He would identify budget cuts better than any OMB Director before or since. His influence in the Reagan Administration fell in December 1981 when an article was published in the Atlantic Monthly in which he was quoted as saying "Kemp-Roth [Reagan's 1981 tax cut] was always a Trojan horse to bring down the top rate.... It's kind of hard to sell 'trickle down.' So the supply-side formula was the only way to get a tax policy that was really 'trickle down.' Supply-side is 'trickle-down' theory."
Yes, we owe the term “trickle-down economics” to David Stockman. But what does this really mean? Is there a rational approach that allocates resources efficiently? Not in the sense that Stockman was implying. I am not aware of a government centralized resource allocation mechanism that works. Government is not designed around a win-win approach based on individuals advocating their self-interest economically. By the way, the top tax rate when Reagan took office was 70%.
Regardless of which tax theory one advocates and as a future post will suggest, the first question is to determine what’s fair.