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Supply Side…


Is back in style! Did it ever go out?

Atrios’ analysis is entirely accurate:

For those who may not remember, Laffer was the guy who scribbled what became known as the “Laffer curve” on napkin to demonstrate how if you cut taxes then revenues will magically go up! The idea (correct) being that too high tax rates will so discourage economic activity and encourage evasion that by lowering them revenue collected will increase. That part isn’t crazy. What’s crazy are all the people who think it always works – the lower the taxes, the higher the revenues! Or, specifically, the question is what is the tax rate which maximizes revenue? (not that revenue maximization is necessarily your goal, but if you haven’t yet reached that rate then it just isn’t true that lowering taxes will increase revenues).

Supply siders are correct to the extent that EXTREMELY high tax rates (90% certainly, but no one knows where the cut off is) do discourage revenue collection through fraud and lost economic activity. However, they would have you believe that what goes for 90% tax rates also goes for 30% tax rates. The natural corollary of this is, of course, that an infinitely small rate of taxation produces an infinitely high level of revenue. Unfortunately, the liberal media has not properly interrogated this belief (probably too liberal, or something) and right wingers continue to spew it when all they’re really interested in is cutting taxes on the wealthy. Impact?

So, that famous little napkin helped Reagan enact the largest tax cut in history, which was almost immediately followed by the biggest tax increase in history as the wheels started to come off the wagon.

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