Supply Side Economics Debunked

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  • In recent statements, the President, the Vice President, and key Congressional leaders have asserted that the increase in revenues in 2005 and the increase now projected for 2006 prove that tax cuts “pay for themselves.” In other words, the economy expands so much as a result of tax cuts that it produces the same level of revenue as it would have without the tax cuts.
  • Few issues in American politics are as misunderstood as the national deficit and debt. On one hand, supply-siders claim that the debt is insignificant; on the other, Ross Perot claims that it's a national disaster. The numbers say it's neither:
  • Some proponents of the proposed Bush tax plan argue that it will significantly raise economic growth rates by cutting marginal tax rates. For example, a recent Heritage Foundation report argued, Because of steep personal income tax rates, highly productive entrepreneurs and investors can take home only about 60 cents of every dollar they earn, not including state and local taxes or other federal taxes. This reduces the incentive to be productive. Lower tax rates will reduce this 'tax wedge' and encourage additional work, savings, investment, risk-taking, and entrepreneurship.
  • The new Congressional Budget Office budget projections released today show that the nation faces a fourth consecutive year of substantial budget deficits. Some seek to portray ?runaway domestic spending? or growth in the costs of entitlement programs as the primary cause of the shift in recent years from sizeable surpluses to large deficits. Such a characterization is incorrect. In 2005, the cost of tax cuts enacted over the past four years will be over three times the cost of all domestic program increases enacted over this period.
  • We've all heard the claims that cutting tax rates for the richest Americans will improve the standard of living for the working class. Supposedly, top-bracket tax breaks will result in more jobs being created, higher wages for the average worker, and an overall upturn in our economy. It's at the heart of the infamous trickle-down theory.
  • s we all know, the Bush administration has taken supply-side/trickle-down economics to heights unimagined by Reagan. This week, as Congress gets back into session, even with issues of disaster response facing them, the Senate Republicans have made ending the estate tax their number one priority. This is how important supply-side economics has become to the GOP; pushing their economic agenda now trumps all other matters.
  • The NYT's Ross Douthat flags a very important article by Kevin Williamson in National Review debunking the myth that tax cuts increase revenue, an article of faith among George W. Bush and other prominent Republicans that even Bush's own economists didn't believe.
  • May 03 2010
    Goodbye Supply Side
    There are two schools of thought about the Reagan tax cuts. The conventional conservative view: They spurred investment, entrepreneurship, and real economic growth, helping to resuscitate the post-Carter economy, and, by doing so, they paid for themselves. The conventional liberal view: They were an ill-considered product of starve-the-beast ideology and produced crippling deficits, inaugurating a new era of fiscal irresponsibility only briefly transcended during the golden years of the Clinton presidency.