Social:Trickle-up effect

The trickle-up effect or fountain effect is an economic policy proposition that final demand among a broad population can stimulate national income in an economy. This policy approach gained widespread acceptance after the work of John Maynard Keynes during the Great Depression of the 1930s. It is sometimes referred as Keynesian economics in which economic growth is enhanced when the government lowers taxes on the middle class and increases government spending. The trickle-up effect states that policies that directly benefit lower income individuals will boost the income of society as a whole, and thus those benefits will "trickle up" throughout the population.

Relationship to the trickle-down effect

Supply-side economics suggests that when businesses benefit from reductions in government regulation or taxation, economic benefits will accrue not only to those immediately benefitting, but also for the middle class in the form of jobs and cheaper goods. "Trickle-down economics" is a term sometimes used to refer to a policy of cutting taxes on wealthy in an attempt to stimulate overall economic activity. Under president Reagan, the US lowered the maximum tax rate, which affected the highest income earners, from 70% to 28%. Between 2001 and 2003, the Bush administration lowered the top marginal tax rate from 39.6% to 35%. During the Presidency of Donald Trump similar tax relief and broad regulatory relief were enacted.

Application in policy

The principle behind Obama administration's actions was referred to as trickle-up economics, but the term bottom-up economics was also used for it. On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act (ARRA), a $787 billion economic stimulus package aimed at helping the economy recover from the deepening worldwide recession. The act included increased federal spending for health care, infrastructure, education, various tax breaks and incentives, and direct assistance to individuals. Democrats overwhelmingly supported this measure, while only a few Senate Republicans supported the law.

The CBO (Congressional Budget Office) estimated that the ARRA would positively impact the GDP (Gross Domestic Product) and employment, with primary impact between 2009 and 2011. It projected an increase in the GDP of between 1.4 and 3.8% by late 2009, 1.1 and 3.3% by late 2010, and 0.4 and 1.3% by late 2011, as well as a decrease of between zero and 0.2% beyond 2014. The impact to employment would be an increase of 0.8 million to 2.3 million by last-2009, an increase of 1.2 million to 3.6 million by late 2010, an increase of 0.6 million to 1.9 million by late 2011, and declining increases in subsequent years.

See also

• Trickle Up (non-profit organization)
• Gini coefficient
• Wealth concentration
• Trickle-down effect