Trickle Down Theory Definition Explained Fashion Examples

Trickle-down Theory Definition

This theory is based on the belief that huge corporations, wealthy individuals, entrepreneurs, and investors would reinvest tax savings to generate more employment opportunities. The critics of trickle-down economics believe that tax cuts for affluent individuals and corporates adversely affect the economy by raising inequality.

Key Takeaways

The trickle-down theory is a political strategy. Governments reduce taxes for wealthy individuals, investors, business owners, and large corporations, anticipating increased economic activities and job creation.The word trickle-down was first used by a comedian, Will Rogers—when he commented upon US president Hoover’s tactics during the Great Depression.During the 1980’s recession, Arthur Laffer proposed trickle-down economics to the Reagan administration. He recommended a reduction in government tax rates and claimed it would increase the government’s revenue.In the fashion industry, trends created by affluent individuals trickle down to the middle-and lower-income groups who purchase affordable versions of the same style.

Explained

The trickle-down theory is a political stance—it is an expansionary policy that is applied to the upper class—wealthy individuals, investors, and large organizations. The government reduces taxes on income, dividends, and capital gains. Also, to achieve the trickle-down effect, governments relax regulations on the high-income group.

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Many economists believe that rewarding the affluent sections of the society increases their wealth—that this wealth trickles down to other economic sections in the form of business expansion and increased employment.

The term can be traced back to American humorist Will Rogers who joked about the measures adopted by Herbert Hoover—at the time of the Great Depression. Later, during the 1980’s recession, Arthur Laffer proposed trickle-down economics to the Reagan administration. Laffer was an American economist and advisor.

Laffer recommended a reduction in government tax rates and claimed it would increase the government’s revenue. He formed a bell-shaped curve known as the Laffer curve to prove the relationship between tax cuts and increased tax revenue for the government.

As a result, the US marginal tax rates were brought down from 70% to 28%—between 1980 to 1988. Also, between 1980 and 1988, the federal revenue went up from $517 billion to $909 billion—due to the trickle-down effect.

Trickle-down Theory in Fashion

The trickle-down effect plays a major role in the fashion industry; fashion trends and style statements are created by affluent individuals. The middle-and lower-income groups follow these trends by purchasing affordable versions of that style.

In the late nineteenth century, sociologist George Simmel introduced the theory to the fashion world. Authors Veblen, Spencer, and Grosse observed styles trickling down from affluent sections to lower sections of the economy. However, in 2003, Carter rejected the idea by claiming that the trickle-down concept is an organized political concept and that its application to the disorganized fashion industry is irrelevant.

In the 1960s, trickle-down fashion was criticized for class discrimination. Later, in 1985, McCracken tried revitalizing this concept by proposing a gender-based trickling-down of fashion trends. He explained that women determined men’s fashion trends; however, his thoughts were not considered very practical.

Also, in 2004, Cook and Kaiser stated that fashion trends trickle down from adults to teens and children.

Examples

Let us look at some examples to understand the practical application of the theory.

Example #1

American President George Bush implemented the Jobs and Growth Tax Relief Reconciliation Act of 2003. It was an attempt to revive the US economy amidst the 2001 recession. The policy offered tax relief to 136 million US taxpayers, including business owners, senior citizens, families, and employees.

The Bush government implemented the following trickle-down policies:

Increase in per-child tax credit from $600 to $1000 to benefit 25 million eligible families.19% reduction in federal income tax for a family of 4 members with a total income of $75000.96% tax cut for the family of 4 with a total income of $40000.An average tax reduction of $1401 for 12 million senior citizens.An average tax cut of $2209 for 23 million small business owners.

However, trickle-down economics did not produce results in the real world. Instead of the expected reduction in recession, inequality levels rose across America in 2005. The bottom fifth experienced only a 6% growth in their after-tax income. Meanwhile, the the top fifth marked an 80% increase in their after-tax income.

Example #2

In 1981, Ronald Reagan took charge; he came up with Reaganomics —a unique four-point economic plan. The idea was to control stagflation by bringing down tax rates, relaxing government regulations over businesses, and curtailing government spending.

In hindsight, Reagan’s trickle-down effect failed. The tax savings offered to the rich did not lead to job creation. The savings were accumulated, and the rich became richer.

The policies created a wide divide between the wealthy and economically challenged sections of the US.