This guest post was written by Kats Eye.

Trickle down economic theory has a lot in common with your old fashioned Mr. Coffee drip coffeemaker. Each must go through a filter before the output can be captured and utilized. Unfortunately, the filters applied in the economy do not assist the average Joe in the manner that your cuppa joe machine does so reliably each morning.

The incentives for corporate America have changed. Whereas in the past, an influx of cash uncommitted to taxes could be used to hire, promote, reward, expand and invest, today’s corporate America uses the cash towards other ends. While CEO salaries may be the first thought that comes to mind, that is only one drip in the cup. Mergers, acquisitions, partnerships, outsourcing, financial vehicles on Wall Street, and the ever popular new way of showing one’s corporate prowess – whose quarterly revenues are bigger!

Trickle down cannot work in an economy where the corporation increasingly is focused on Wall Street, outsourcing, and short term revenues over long term investments and slow but steady growth. In a world where employees (and all their benefit, training, and retirement baggage) are viewed as costs to be eliminated, the filter directs the trickle down drip into various coffers displayed in the annual report to shareholders.

Small businesses reflect the best chance for trickle down to work, however in more and more instances, internet commerce is replacing the store front sale. Service providers and local shops rely on customers to spend their wages, thereby allowing an increase in hiring and growth in the business. When customers find their income stagnated (due to the corporate filters), the sales decrease, leading small business owners to use those trickle down tax breaks to pay the bills, and look to online customers in a more widely distributed market to bring in that revenue. The trickle down cash can help the business owner grow their business, but the effects are not as clear in the local economy or in the local job market as once expected.

To make trickle down effective in this environment is a tricky situation. Perhaps we need a combination of trickle up and trickle down… recognize that corporations view employees as costs and incentivize the trickle towards those areas. Don’t increase taxes on employers with good healthcare plans, reward them with tax breaks to have them. Offer greater tax breaks for employee training / continuous education. Reward re-investment in companies through tax breaks to alleviate some of the fallout from quarterly revenue lust.

The game has changed – the theory can still work, but it has to be applied in the context of the environment.

Drip...Drip...Drip