An End to Trickle-Down Economics?


The U.S. cut taxes on corporations and the wealthy under President Trump in hopes that the benefits would trickle down to everyday workers. Less than two months into the Biden-Harris administration, the U.S. implemented a $1.9 trillion stimulus plan that included direct payments of $1,400 targeted at lower-income workers and families, along with expanded child tax credits and unemployment benefits.

Attendees of the RFK Compass Spring Virtual Investor Summit in March took note of that contrast as they convened to discuss leadership, action, and impact on social issues in 2021 and beyond.

“Instead of trickle-down, we have trickle-up economics,” Afsaneh Mashayekhi Beschloss, chief executive officer of investment firm RockCreek, said during a virtual panel focused on what the first year of the Biden-Harris administration is likely to mean for economic and social policies.

Since the March summit, President Biden has proposed increasing taxes on corporations to help pay for a $2.3 trillion infrastructure investment plan and Bloomberg News has reported that the administration may be considering doubling the capital gains tax rate for wealthy individuals to 39.6% to help pay for social spending programs that address long-standing inequalities.

Beschloss noted that economic inequality has been on the rise in recent years, thanks in part to easy money policies from the Federal Reserve, which flooded markets with more liquidity and benefited wealthy families who own more stocks than lower-income households. Illinois State Treasurer Michael Frerichs, pointed out that Americans who aren’t affluent enough to own stocks are the ones who are hurting the most from the COVID-19 recession and in need of government help.

That’s where Frerichs sees the opportunity for President Biden’s stimulus bill to not just aid those most in need but also the broader economy. Recipients of the $1,400 direct payments included in the bill (which phase out for individuals earning more than $75,000 per year) will spend the money, fueling an increase in consumer spending that will boost economic growth and benefit businesses as well as investors and wealthier households invested in stock markets.

“I really do believe in this case a rising tide will lift all boats,” said Frerichs, who as Illinois treasurer also serves as the state’s chief investment officer, overseeing $35 billion in state and local funds, retirement and college savings plans.

Frerichs also lauded another policy embedded in the stimulus bill: $350 billion in aid to state and local governments like Illinois to help them weather the severe fiscal strains created by the pandemic. Frerichs said that Washington’s failure to provide more aid to state and local governments in the aftermath of the 2008 financial crisis forced them to lay off workers and cut spending, which slowed the post-crisis recovery. He’s glad to see Congress avoid making the same mistake this time, “which will hopefully get us back on track sooner.”

Economists and the Federal Reserve have already increased their expectations for U.S. economic growth this year thanks in large part to the stimulus bill. Beschloss said there are other policies that can further boost growth while also benefiting some of society’s most vulnerable members. She pointed to immigration reform—a goal that has evaded lawmakers for years—as one example.

President Biden sent an immigration reform bill to Congress on his first day in office. The U.S. Citizenship Act of 2021 would provide a pathway to citizenship for undocumented individuals and clear employment-based visa backlogs, among other changes that the White House said will “restore humanity and American values to our immigration system.”

Beschloss said Biden’s reform push would further aid the economy by easing labor shortages in sectors that rely on immigrant workers, ranging from agriculture to high-skilled artificial intelligence. “Because of the lack of immigration, there is so much shortage of labor to do so many things,” she said, adding that immigration reform could help the U.S. reach 6-8% growth in gross domestic product.

Immigration would also benefit diversity and inclusion—another issue that was a hot topic throughout the virtual summit. Frerichs, who has pushed for more diversity in the boards of companies that Illinois invests in, said he’s found more receptivity to his argument in the last year.

“When data shows that diverse boards outperform homogenous boards, why would I not want to make sure the boards of the companies we’re investing in have more diversity?” Frerichs said. “One upside of the events of last summer and the marches and the movement and the dialogue is that we’ve found more people who are now taking stock of this.”