High Tide for Supply Side
November 7th, 2005 by Alexander ZozosNovember 4th, 1980, occurred before I was born, but it still is a very significant day to me. On this day the ‘Reagan Revolution’ was born, and ’supply side’ economics was given legitimacy when Ronald Reagan was elected as the 40th President of the United States. Now 25 years later have we been able to capitalize on the realization that tax cuts generate revenue? Are we able to recognize the simple principle Arthur Laffer proposed on a restaurant napkin that has been corroborated by multiple examples throughout economic history?
The answer to these simple questions is no. The current system which we all pay taxes to is overbearing, cumbersome, and antiquated. Our founding fathers revolted over conditions far less inequitable. Our election system grants us a voice to deem what is acceptable, and to hold those accountable who we don’t agree with, we need to act. When Reagan took office the economy was growing at .9% annual rate (1978-82). He then cut taxes across the board by 25%; the result was a robust 4.8% annual growth (1983-86). The President’s Advisory Panel on Tax Reform recently returned its findings on how to improve our current tax system; our Chairman Dick Armey testified to the committee. While the findings aren’t as sweeping as a flat tax (the best proposed solution), they are a step in the right direction. It is important that we take a stand and support the proposed changes.
Lessening the punishment for investment in the future, by lowering the capital gains tax; lessening the punishment for working by marginally lowering the tax rates are all improvements. Supporting these recommendations will tell the IRS that its days of inefficiency are numbered. 25 years ago Reagan lit the flame that has been carried since; it is our time, and high tide to carry the torch for supply side.
November 8th, 2005 at 1:30 am
Although the arguements presented are both well written and persuasive, I am still troubled by certain aspects of Reganomics. For one, it has always been my understanding that in conjuction with tax cuts, reduction in Government spending is neccessary in order to reap the benefits of the supply side stimulus. However, both Regan and our current President have seemed to overlook the second part of the supply side equation, and instead of stimulating the American economy, they have left the American tax payer with a massive deficit and an impending recession. Secondly, I am not sure if it is prudent to cut taxes at a time when the Goverment is spending record amounts. With a war in Iraq, the task of rebuilidng an American city at home, and critical services like education already underfunded, it seems to me almost irresponsible to ask for Americans to contribute less towards our common good. Finally, I agree that our current tax system is cumbersome and in need of reform, but that reform should not come in the form of tax breaks for the wealthy, but should instead seek to provide relief to the true engine of the American economy, the middle class. In summation, taxes represent an investment in the future of America, and we, as American, should realize that now is the time to invest wisley, in order to ensure for our children a future of equity, security, and liberty. However, that means putting our tax dollars to work today, and not simply wantonly cutting taxes or advancing a theory scribbled on a napkin that creates debt, not surplus, recession, not growth.
November 8th, 2005 at 12:58 pm
There is a point with your argument about out of control spending. True fiscal conservatism is the optimum for realization of the economic stimulus provided through tax cuts. But you also have to look at the global situation which you inherit as an administration. With Reagan we were enamored in the Cold War. When Bush took office we faced a many threats occurring outside the United States. I feel it was responsible and in our nation’s best interests to adhere to national security at all costs. There are other domestic entitlement programs that have been pushed through by this administration that do not embrace fully fiscal conservatism. But Bush’s 2001 tax cuts which were endorsed by “the maestro” Alan Greenspan have in fact done exactly what supply side, and the Laffer Curve teach us: that is increase revenue by decreasing the tax rate.
Your argument that, it is not “prudent to cut taxes at a time when the Government is spending record amounts” does not withstand true analysis. You contend that currently programs are under funded (which I don’t agree with, I believe there is inefficient and wasteful spending). But for the sake of the discussion the only way to stop something from being under funded is to have more money to fund it. Bush tax cuts did exactly this; generating more than $100 billion more revenue. This is how supply side works, you cut to gain.
Let’s look at Tax cuts throughout history:
Tax Cut
Revenue Growth 4 years prior to Tax Cut
Revenue Growth 4 years after Tax Cut
Harding Tax Cut:
(1920-1924) -9.2%
(1925-1929) .1%
Kennedy Tax Cut:
(1960-1964) 2.1%
(1965-1969) 9%
Reagan Tax Cut:
(1978-1982) -2.8%
(1983-1987) 2.7%
These are just three examples of how tax cuts INCREASE tax revenue. This doesn’t take into account increased GDP, lower unemployment and a host of corollary effects that improve standard of living by lower taxes. Moral of the story if you want to more funding then you want tax cuts!!
While there is a limit to the Laffer curve we are in no way close to that point with many citizens of the United States working over 110 days a year for the government. The only way to truly invest in America’s future is the lift the disincentive on savings for the future. The President’s Advisory Panel on Tax Reform advocates for this by reducing the capital gains tax.
When examining your final point of “advancing a (Laffer) theory scribbled on a napkin that creates debt, not surplus, recession, not growth.” you see it is actually completely false when you look at the facts. We should support the Panel’s findings as a step in the right direction, and lessen the burden of government.
I think President Kennedy said it best…
“In short, this tax program will increase our wealth far more than it increases our public debt. The actual burden of that debt–as measured in relation to our total output–will decline. To continue to increase our debt as a result of inadequate earnings is a sign of weakness. But to borrow prudently in order to invest in a tax revision that will greatly increase our earning power can be a source of strength.”