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Saturday, December 14, 2002

Supply Side Truths and Myths-Chris Burgwald e-mailed me asking for feedback on a pair of economic essays, one on tax rates and one on the relative importance of deficits. I'll get to them in more detail in the next few days, but I wanted to get one thing that has stuck in the back corner of the public's mind for a quarter-century; that supply-siders think tax cuts will raise revinues; A Salem Radio News (evangelical outfit used by many Christian radio stations) newcast piece on the Freidman nomination had that thought this morning. This was the germ of the Kemp-Roth proposal of tax cuts that Reagan adopted. Tax rates were cut by 25% and revinues didn't fall off significantly. However, the Reagan tax cuts started with a top personal tax rate of 70%; it was a lot easier to make the Laffer Curve case that those high tax rates were counter productive. However, with the top rates down to the 40% realm (39.6% IIRC), it might be harder to justify the idea that tax cuts will raise revinues. They will reduce revinues far less thn Keynesians would think, for the lower rates will stimulate investment and economic growth. I think were on the left slope of the Laffer Curve. However, even if tax revinues are reduced by a tax cut, the better economy might help the commonweal more than the government spending that those higher taxes supported. So, I don't think its fair to say that supply-siders think a tax cut will raise revinue. It would be fair to say that they think it will be good for the country. Expect some in-depth posts on the topic next week.

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