New Study By IMF Blasts GOP’s ‘Trickle-Down’ Economics, Says Higher Wages For Poor Lead To Growth

The International Monetary Fund (IMF) just threw a wrench at Republicans in Congress with their latest report entitled Causes and Consequences of Income Inequality: A Global Perspective. In the 39-page document, they slam Reaganomics and its followers by saying “trickle-down” economics just doesn’t work. In fact, not only that but the opposite is true:

“We find that increasing the income share of the poor and the middle class actually increases growth while a rising income share of the top 20 percent results in lower growth—that is, when the rich get richer, benefits do not trickle down.”

They used the term “trickle-down” for a reason. They were sending a clear message to conservatives on the right who have been ignoring their recommendations for some time now. It’s a familiar talking point of theirs that says if you give money to “job creators,” they will open more shops, employ more people, increase incomes, etc. These myths are an outright lie, and the IMF is taking notice.

The exact numbers say that, on average, for every one percentage point increase in income for the rich, a .08 percentage point decrease in GDP resulted. The same increase applied to the poorest citizens actually raised GDP by .38 percentage points.

The IMF is also calling for a more progressive tax system and more investment in health. It mainly advocates a “greater reliance on wealth and capital gains taxes.”

“Fiscal policy already plays a significant role in addressing income inequality in many advanced economies. The redistributive role of fiscal policy could be reinforced by greater reliance on wealth and property taxes, more progressive income taxation, removing opportunities for tax avoidance and evasion, better targeting of social benefits while also minimizing efficiency costs, in terms of incentives to work and save.”

The reforms it recommends sound awfully similar to President Barack Obama’s own policy proposals. In Obama’s State of the Union address earlier this year, he stated the need to increase the capital gains tax rate from 20% to 28% while closing loopholes for the wealthy.

The problem is not just inequality itself, which is certainly a concern for a variety of reasons. The IMF is speaking strictly through a lens as it relates to the economy and advocates for these reforms not for the reforms themselves but the greater good of countries as a whole. It states:

“The poor and middle class are the main engines of growth.”

This really isn’t news, though. Democrats have known this for some time. They know that if you put money into the hands of poorer and middle-class Americans, that they in turn will be more likely to go out and spend that money. This increased spending will result in not only a higher consumer demand for goods, but a greater demand for jobs to match that same demand. The rich would just sit on the extra money after buying what they needed.

But, don’t expect this latest study by the IMF to sway any Republicans or get them to admit their policies don’t work. This study is, however, another major political blow for the right that they will have a terrible time trying to explain now, and for a foreseeable time in the future.

Featured image via forbes.