Understanding Anew Supply-Side Economics

[monk222]

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Since the 2006 elections, we've been seeing a lot shifts, some subtle and some not so subtle, to the left. Now we see some movement at the root concept of supply-side economics, which triumphed with the Reagan Administration:

Today, supply-side economics has become associated with an obsession for cutting taxes under any and all circumstances. No longer do its advocates in Congress and elsewhere confine themselves to cutting marginal tax rates — the tax on each additional dollar earned — as the original supply-siders did. Rather, they support even the most gimmicky, economically dubious tax cuts with the same intensity.

Now, there is still a legitimate debate about the size of government and how big or minimal it should be. But it will be carried on more honestly. The right has been having it both ways, saying that we increase government revenue by cutting taxes - you can have your cake and eat, too. The general rule of common sense is reclaiming some of that ground: when you cut taxes, you are usually cutting revenue, too. You cannot get something for nothing.

Maybe less government means a more robust and richer private economy and a wealthier society, but that is a different debate, a more fundamental one. Americans have yet to demonstrate they want a smaller government in fact, as we have other values of fairness that we are also concerned about. With the bills on the war still coming in, and with more calls for better health coverage, one imagines that taxes will be going up.


(Source: Bruce Bartlett for The New York Times)

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Comments

[hardblue.livejournal.com]

Uggh, I was hoping that you might be busy with real life or something. But I'll give this a try.

Those increases in receipts are higher than I would have expected from just a naturally growing economy that has not fallen into a deflationary spiral.

But I marvel over how the two Administrations that are most faithful to the idea that lower taxes increases tax revenue (what I learned as the Laffer principle), the Reagan and Dubya administrations, have seen historic rises in deficits. Reagan's deficits were finally cleared under Clinton, to be taken back up to the stratosphere under Dubya. There is some reason why such supply-side policies have been called voodoo economics.

Borrowing has to be the worst of fiscal policies, even for conservatives and libertarians, as it is just a drain on the economy, paying interest just because we couldn't manage better. The only exception is if you have a Machiavelian flair and favor the idea of 'starving the beast', that is, to cripple the government by loading it under such a heavy burden of debt that liberals will not be able to do much when then get in power.

As for the Laffer prinicple, in abstract, we can surely agree that if we collected zero taxes, then revenue would obviously not increase. So, it seems to me that at some point, we are going to get diminishing returns on the Laffer priniciple, and at some point, we will see less revenue with lower taxes.

As far as I can follow is to say that maybe Americans are taxed heavily enough that we are safely above that point of diminishing returns.

Still, that deficit problem is something that has to be addressed. I suppose one could argue that it involves different issues, relating to spending, but I think we have to see these fiscal issues as one dynamic.

[hardblue.livejournal.com]

so again, why kill the ox that pulls the plow?

I suppose the best answer is that one does not want to kill the ox, but that we may be willing to slow the ox down in the interest of fairness or distributive justice. There are trade-offs, and it may be argued that letting the economy run cooler is worth getting a 'better distribution' on the fruits of the economoy/ox.

I understand that you can just disagree and argue that some government/gun-based redistribution is inherently less fair and even counter productive. But the democratic pressure builds when you have a growing divide between the wealthiest few percent and the lower orders.

At the very least, without being totally collectivist, Americans have valued the idea of opportunity and fair play, so that one's life chances are not limited by one's humble birth. In particular, that means that poor children should have adequate health care and even a decent education, so that they can compete in a more Ayn Randian world, and that it is worth burdening the ox a little for that outcome.

Such seems to be the natural direction of democracies. I would be interested if you still support democracies as the best polities, but regret that they tend to be self-destructive as people cannot overcome this socialistic tendency.

[antilapsarian.livejournal.com]

The hot topic here in IL is that the governor has proposed a plan that would essentially tax businesses to pay for every citizen in the state to be covered by health insurance.

Business owners cry foul, of course, claiming they'll pack up and move to Wisconsin or some such. Or, at the very least, it will be passed on to consumers. It's the same argument as happens when they try to raise the minimum wage.

I just took a survey for the DNC asking me my opinions on key topics and one question was whether or not I support a tax cut on working Americans. I noted that, more than tax issues, what concerns me is the way the federal government spends money. I have no problem with taxes as long as they are being used wisely. It is the "no taxation without representation" thing that gets us though, right? Taxes have to be going to meet public needs--mainly, benefit the constituents.

There are no local income taxes here in IL, just state tax so that the sales taxes are crazy. 9% or so compared to 5-6% in Ohio. But I think a simple flat tax punishes people on low-end goods in some ways. I'd be more supportive of a graduated, categorized flat tax which increases the percent depending on the item and how much it costs.

In other words, you should pay more tax on a new BMW than on a pair of pants. The pants maybe should have a 5% tax. The BMW, a 10% tax. Bottom line is that those who can most afford it should be the ones who pay more to the government and the little guy should get a break.

I think that has been the criticism of Bush is that while spending was out of control under his reign, he pushed through tax cuts that benefit the wealthy while things like higher education and middle income folks feel the squeeze of higher prices, etc..

My argument would be that I'm not for big or small government. I don't care about size, I care about use. Big or small government can be just as ineffective either way. The more important thing is that government is taking in revenue wisely and then spending it wisely.