An old term of questionable meaning is getting a new lease on life: Trickle-down economics. And to many in media and liberal circles, it has once again emerged as the great hobgoblin of our time.

“Trump and conservatives in Congress are planning a big tax cut for millionaires and billionaires,” Robert Reich, who served as secretary of labor during the Clinton administration, wrote in Newsweek recently. “To justify it they’re using the oldest song in their playbook, claiming tax cuts on the rich will trickle down to working families in the form of stronger economic growth. Baloney. Trickle-down economics is a cruel joke.”

But what is trickle-down economics? The answer depends on who is saying it and what public opinion buttons they are trying to press. Kent Smetters, Wharton professor of business economics and public policy, says that trickle-down economics is a term created to disparage supply-side economics.

“It is just a clever negative sound bite,” says Smetters, faculty director of the Penn Wharton Budget Model (PWBM). “Detractors claim that supply-side economics is about giving tax breaks to the rich. The rich then engage in more economic behavior, such as buying more stuff or hiring more workers; that eventually ‘trickles down’ to the non-rich who get the crumbs that fall from the table.”

Many others have pointed out the folly of using the term — that no real economic model or serious school of thought stands behind what has long been a term of art at the intersection of politics and media. “I have a little bit of a hard time with the terminology and the idea of trickle-down economics,” says Wharton professor of finance Joao F. Gomes. “Although everyone in the popular press has a somewhat different characterization of what this means, this is not something we have tested or seriously theorized about as economists.”

But if there is no substance behind trickle-down — just pejorative intent — the Trump administration itself has curiously invoked the term in its zeal to sell its tax plan to the American public.

“I don’t believe that we’ve set out to create a tax cut for the wealthy. If someone’s getting a tax cut, I’m not upset that they’re getting a tax cut. I’m really not upset,” Gary Cohn, President Trump’s chief economic adviser, told CNBC recently. “We create wage inflation, which means the workers get paid more; the workers have more disposable income, the workers spend more. And we see the whole trickle-down through the economy, and that’s good for the economy.”

“Describing this view as ‘trickle-down economics’ would be akin to supply-siders describing their detractors as communists, a label that would certainly be rejected as well.”–Kent Smetters

It’s not clear that most Americans believe that anything good will eventually trickle down to them from the still-unfinished overhaul. When asked who the Republican tax plan would help most, 76% of respondents to a December 2-5 CBS poll of 1,120 adults nationwide said it would be large corporations, with 69% saying wealthy Americans would benefit most. Just 31% named the middle class as winners, with “you and your family” trailing at 24%.

Trickle-down’ Meaning: A Politically Infused Etymology

The Oxford English Dictionary defines the particularly colorful phrase trickle down as the notion that wealth will “gradually benefit the poorest as a result of the increasing wealth of the richest.” The term’s popularization is often traced to a 1932 syndicated column by Will Rogers in which the humorist referred to money “appropriated for the top in the hopes that it would trickle down to the needy. Mr. Hoover was an engineer. He knew that water trickles down. Put it uphill and let it go and it will reach the driest little spot. But he didn’t know that money trickled up. Give it to the people at the bottom and the people at the top will have it before night, anyhow.”

“Favors for the few and prayers for the many” is what Adlai Stevenson II called it in an address to a 1954 Democratic Party rally in Detroit while stumping nationally for candidates.

A 1971 New York Times editorial referred to organized labor’s view that President Nixon was embracing “old-line ‘trickle down’ economics in the conventional Republican mold” by suggesting that “workers will benefit most by large-scale tax concessions to industry designed to spur investment in modernized plants and thus strengthen the competitive position of American business.”

And when President Ford proposed a tax overhaul in 1974, Sen. Edward M. Kennedy dismissed it as “a throwback to the trickle-down economics the nation has traditionally had to suffer under Republican Presidents.”

The phrase’s resonance today, of course, emanates from the Reagan era, and while it may have stood the test of time, longevity has not conferred clarity. Part of the problem is that “trickle down” lacks a universally understood meaning. Smetters says the idea of tax breaks for the rich eventually producing benefits to the poor has never been part of supply-side economics.

“Supply-siders believe — correctly or not — that lower taxes lifts all boats together,” he says. “Growth is not a flow of resources that cascade from rich to non-rich. In fact, many supply-siders argue that lower taxes benefit workers more than capital owners through international capital flows. Whether this argument is right or wrong is a legitimate issue. But describing this view as ‘trickle-down economics’ would be akin to supply-siders describing their detractors as communists, a label that would certainly be rejected as well.”

Semantics aside, most agree that the right kind of stimulus can be efficacious to growth. “The term ‘trickle-down economics’ doesn’t really represent a cohesive economic theory,” says Wharton professor of business economics and public policy Benjamin Lockwood. “It’s a term used, often negatively, to characterize the view that reducing taxes on the rich will benefit the non-rich.”

There are a number of reasons why tax cuts for high earners could theoretically make others better off, he says. “Economists have long emphasized that taxes don’t necessarily ‘stick’ where you levy them — for example, a tax cut on corporate profits could raise workers’ wages. And if taxes are very high, reducing them can theoretically spur economic activity enough that tax revenues actually increase, which may have been the case in the 1950s, when top income tax rates exceeded 90%.”

However, he says, there’s little evidence to suggest that this would be the case for the current GOP proposal. “Most recent estimates suggest that the majority of corporate income taxes fall on business owners and shareholders, with only a minority falling on wages. And the fiscal crisis generated by Kansas’s recent tax cuts suggests today’s tax rates aren’t high enough for such cuts to be revenue-generating.”

“How much growth will we get from this plan? It depends on final details and things we truly don’t know much about.”–Joao Gomes

The current tax bill is still a moving target, but the Penn Wharton Budget Model finds that the boost to GDP produced by the tax cuts would not be enough to pay for the tax cuts.

Lower taxes will probably add to growth. “Almost all economists accept that,” says Gomes. “How much and for how long is another question, and that’s where we disagree. There are several reasons for that. Some of us will say it is because lower taxes encourage people to work more and maybe corporations to invest more. If the tax cuts are long lived, this will raise national income for a long time. Republicans tend to start from this point.” Others will say it is because lower taxes will put money in people’s pockets and encourage spending which in turn creates jobs for a short time, even when the tax cuts are also temporary, Gomes adds. “Democrats tend to start from here. Indeed, this was the rationale for temporary cuts under President Obama. As I said, most economists agree that each of these arguments has merit. However, long-term cuts that stimulate work and investment cost more money and tend to benefit people who pay higher rates and/or capital gains taxes. These tend to be higher-income individuals.”

Do tax cuts pay for themselves, as some like to suggest?

“Almost surely not,” says Gomes. “But it is also important to say, to be absolutely fair, neither does spending on infrastructure, and that has not stopped left-wing economists from proposing it with the same fuzzy math that right-wingers support with these cuts. For an unbiased observer, there really is very little to choose between the fiscal probity of Democrats and Republicans.

“How much growth will we get from this plan? It depends on final details and things we truly don’t know much about,” Gomes continues. “Will it encourage people to work more? I would estimate yes, maybe a little but not very much. Will it encourage investment? Absolutely. Will it encourage corporations to relocate operations to the U.S.? Maybe, but the details are going to matter a lot.”

Looking for Growth in All the Right Places

The details of the tax plan are still opaque. One key unknown is the extent to which tax savings might be applied in ways that produce growth.

“Under the current tax proposal, the trickle-down economics becomes: ‘we’ll give a big cut in the corporate tax rate with the hope that those workers will benefit from the resulting new investment.’ It’s not surprising that if you tax returns on investments less there will be more investments,” says Robert P. Inman, Wharton professor of finance. “The real question becomes: How big of an effect on investment will there be, and if there is new investment in capital, will it benefit workers?

“The term ‘trickle-down economics’ doesn’t really represent a cohesive economic theory.”–Benjamin Lockwood

“For example, if businesses invest that in existing real estate or share buy-backs,” Inman continues, “there is probably not going to be much of an impact on employment or worker wages. However, investing in a new building or in new capital equipment will employ people and potentially increase worker productivity. In that case there will be a positive effect on employment and on worker wages.”

But how many jobs? And wages of what kind?

“I suspect most of the new machinery will be very sophisticated, high-tech, investment. If so, the trickle down, the wage premium for those at the lower ends of the income distribution, will be rather modest. The trickle-down will probably stop at [jobs paying] about $50,000.”

Inman recalls the effects of President George W. Bush’s 2004-2005 overseas corporate profits repatriation program. “The idea was that it would lead to a big influx of cash on the investment side, but what corporations ended up doing was buying back shares. That was an investment, but an investment that didn’t create any jobs.”

Of the new tax plan’s repatriation of earnings — about $2.5 trillion sitting offshore — that would be automatically brought home and taxed at a special rate, Smetters says it’s likely that some of it will translate into higher dividends, some into stock repurchases and some of it will be invested. “We don’t think the investment channel is going to be nearly as big as some people will say, and the reason why is that there are already some ways of clever financing,” he recently said in a separate Knowledge at Wharton interview.

Inman does believe that lowering the corporate tax rate makes sense, but that it needs to happen along with closing loopholes. “Close the loopholes, then see how much money you have and lower the tax rate accordingly,” he suggests.

On the question of whether the GOP’s plan will increase income and wealth inequality, a lot depends on what the exact changes to the estate tax end up being, says Gomes. “Still, from an inequality standpoint it would be great to see the elimination of the state and local tax and home mortgage deductions, which are mostly gifts to the top 20% of the income distribution. Eliminating these deductions while cutting tax rates is also the sort of ‘revenue neutral’ change that most economists would applaud.”

One aspect of this debate that is under-emphasized, says Lockwood, is the potential for other types of targeted tax cuts to generate beneficial spillovers. These are benefits that could bubble up from low earners, or flow sideways from middle earners, rather than trickling down from the top.

“There is evidence that cutting taxes, or targeting spending, on specific middle-class professions, including teaching and basic research, would have quite large beneficial spillovers.”–Benjamin Lockwood

“In fact, there is evidence that cutting taxes, or targeting spending, on specific middle-class professions, including teaching and basic research, would have quite large beneficial spillovers,” he says. In a recent paper co-authored with Charles G. Nathanson of Northwestern University and E. Glen Weyl of Microsoft Research and Yale University, Lockwood writes that some professions have “spillovers” — that the social value of an individual’s work can be much higher, or much lower, than that individual’s compensation.

“Some spillovers are quite large,” they write in a Harvard Business Review piece about the paper “Taxation and the Allocation of Talent,” published in the Journal of Political Economy. “Given how much good teachers raise the eventual incomes of their students, we calculate that spillovers from teachers are twice as large as the salaries teachers are paid. The benefits from medical research are even larger, amounting to over one-fifth of total income in the U.S. “On the other hand, some sectors involve ‘zero sum’ endeavors, in which profits come at the expense of other market participants. Examples include excessive litigation or financial traders trying to beat the market.”

They examine two potential types of tax policies. In one, raising top tax rates would, in theory, encourage workers to choose lower-paying jobs, compelling some to gravitate toward more socially valuable professions. In the other, the government would tax or subsidize some professions more than others.

The first approach would do little to spur economic growth, they conclude. The second could boost growth dramatically. Rather than advocating a rewrite of tax code with different rates for different jobs, the authors recommend a rewards system that would raise salaries and award merit pay.

“There is no economist who doesn’t agree that if you give somebody money, it’s going to have effects elsewhere in the economy. The only issue is how do those effects play out….”–Robert Inman

Of growth stimulators in the current GOP tax proposal, Gomes says one aspect that is appealing is the expensing of investment. Firms will be allowed to deduct all investment expenses from their corporate taxes immediately, instead of slowly over time. “This change more than any others should encourage them to invest and boost our economy in the short and long runs. It’s a clever idea that economists have been advocating for years on the left and the right,” he says.

What he likes least: The fact that the plan is unlikely to pay for itself. “We should be raising revenues elsewhere to offset the cost of [many] good ideas. We are adding to the burden of the federal debt when we should be reducing it. Admittedly it’s not a lot relative to GDP, and the bond market is not concerned about the government’s ability to repay higher debt. But it goes in the wrong direction.”

Gomes says “there are several good ideas in the plan. The main problems might be the overall cost and the lack of phase-in for some of the changes that are likely to be very disruptive.”

It is, however, a complex plan, he says, and “obviously Republicans exaggerate its virtues and Democrats the defects. The truth is in the middle.”

Fluidic imagery aside, change is coming. Says Inman: “There is no economist who doesn’t agree that if you give somebody money, it’s going to have effects elsewhere in the economy. The only issue is how do those effects play out, and who are the beneficiaries?

For conservatives, he notes, “trickle-down is a flood, and for liberals it’s a drip.”