‘Trickle-Up’ Economic Policies Put People to Work

November 9, 2017 by Shamekka Kuykendall in Blog, Budget and Tax, Economic Opportunity

Maryland’s success as a state is built on the past policy choices we have made that allow us to invest in the things that make Maryland a good place to live and do business. Maryland’s “trickle-up” economic policies have made our economy stronger as compared to states that take a different approach, according to a recent report from the Institute on Taxation and Economic Policy.

While we still need to take steps to ensure that the benefits of these policies are widely shared with all Marylanders and that everyone pays their fair share, many Maryland policies focus on increasing purchasing power and expanding the social safety net for the middle-class, and those trying to get into the middle class. These policies have contributed to Maryland’s higher economic growth, lower unemployment, and higher per capita incomes.

Maryland’s approach contrasts with states that pursue “trickle-down” economic policies, such as cutting taxes on large, profitable corporations and wealthy individuals under the mistaken belief that the benefits will “trickle down” to the rest of us. Trickle-up policies focus on expanding economic opportunity to the majority of Americans.

Some examples of state policies that have improved the lives of Marylanders and the economic health of Maryland are:

  • In 2014, Maryland increased the state minimum wage to $10.10 by 2018, with gradual increases from the enactment of the law in July 2014. In doing this, Maryland has increased the purchasing power of working families. However, with the final increase approaching, the state needs to consider the next steps to ensure workers are paid a decent wage.
  • Maryland’s broad-based personal income tax, which asks wealthier people to pay a greater share of their income in taxes than those who are less well-off, helps offset consumption taxes, which have the greatest impact on lower-income Marylanders. Consumption taxes, such as sales taxes, are regressive because lower-income people pay a higher share of their income towards these taxes than higher-income people. For example, In Maryland, the bottom fifth of Marylanders, families that make $24,000 or less, pay more than three times the share of their family income towards consumption taxes than the top fifth of Marylanders.

Together, these policies have contributed to stronger economic growth and lower unemployment. As shown below, states without broad-based personal income taxes have lower gross domestic product (GDP) growth and higher unemployment than Maryland. Additionally, research has shown that states that have enacted minimum wage increases have seen faster job growth.

Graph: States with trickle up economic policies experience strong economies

Source: MDCEP Analysis of the Bureau of Economic Analysis’ Regional GDP and Bureau of Labor Statistics’ Local Area Unemployment Statistics. GDP Growth is adjusted for inflation.

Trickle-up economic policies are not only good for business, they are good for Maryland families. The chart below shows that Maryland has higher per capita income, than states without personal income taxes, contrary to discredited claim that policies such as increasing the minimum wage or raising personal income taxes will lead to lower wages.

Graph: States with trickle up economic policies have higher wages

Source: MDCEP Analysis of the Bureau of Economic Analysis’ Personal Income Summary.

For Maryland to remain a national leader, it must continue to take steps to improve the economic well-being of working families and ensure that our state has the resources needed to support public investments.