Supply Side Silliness

The New Republic (alas, subscription only, but I'll link anyway) has a very good editorial about a recent increase in tax revenues has many of those on the right crowing about the success of supply side economics (basically, the idea that cutting tax rates leads to an increase in tax revenue).  What those pointing to the 14% increase in tax receipts fail to note, however, is that when a number reaches a particularly low value, i.e., the lowest tax revenue as percent of GDP since before WWII, it is not all that hard to have large percentage increases.  For examples, if you got a 30 on a test, a 50% increase (i.e., a 45) does not mean that you are all of a sudden acing the course.  The amazing thing about all these purveyors of the supply slide myth is that it is purely wishful thinking with no empirical basis.  They would love it if cutting marginal tax rates actually increased overall tax revenue, but the simple fact is the data show this not to be the case.  (If raising taxes hurt the economy to the degree many conservatives suggest, we would have never seen such a boom during Clinton's presidency).  In no surprise to most people with common sense, when you cut tax rates, you cut tax revenue.  But for many on the right, it seems that if they repeat the supply-side mantra enough it will be true.  What's sad is that anybody gives them the time of day on it (and that many of my students fall for it). 

About Steve Greene
Professor of Political Science at NC State

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