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Trickle-down's tricky math

Tax cuts focus heavily on dividends paid to the well-off, but Bush says the result will be jobs, growth.

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Does trickle-down economics work?

That in essence, is the fundamental question surrounding President Bush's new tax-cut plan.

The plan includes measures that would benefit a range of income groups, from the unemployed to parents. But the centerpiece of the plan - eliminating the tax on corporate dividends - is a move benefiting primarily well-to-do and upper-middle-class Americans who own stock outside of tax-sheltered accounts such as 401(k) retirement plans.

A tax cut for the rich? Certainly. But Bush and his economic advisers say the goal is "jobs and growth" - that by encouraging saving and investment among the wealthy the economy will grow faster.

This theory has been a core element of conservative US politics since the days of Ronald Reagan. But how well it works is a question economists are still wrestling with. Growth has been generally strong from the mid- 1980s through the 1990s, but some of the strongest productivity gains came after a tax hike on the rich, in 1993.

In short, there are so many variables that affect the economy that researchers - often with political biases of their own - haven't reached a consensus on the merits of the conservative approach.

One thing is clear: The wealthy have been growing richer relative to the rest of Americans. And many believe the Bush plan will accentuate this trend.

During the booming 1990s, the income share of the nation's richest 1 percent of families rose so fast it now exceeds the total income of the bottom 50 percent. By one new Democratic estimate, the top 1 percent - those earning more than $313,000 in 2000 - got 17.8 percent of the nation's total income while the poorest half got 14.6 percent.


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