supply-side economics

scientific organization

American Academy of Arts and Sciences

nationality

American

occupation / innovator as

blogger

economist

is a kind of 'fad economics' grounded in the belief (disproved by the ineffectualness of the policy) that decreasing tax rates can increase tax revenues on the assumption that if people could keep a higher fraction of their income, people would work harder to earn more income.

There is frequent confusion on the meaning of the term 'supply-side economics', between the related ideas of the existence of the Laffer Curve and the belief that decreasing tax rates can increase tax revenues. But many supply-side economist doubt the latter claim, while still supporting the general policy of tax cuts. Economist Gregory Mankiw used the term 'fad economics' to describe the notion of tax rate cuts increasing revenue in the third edition of his Principles of Macroeconomics textbook in a section entitled 'Charlatans and Cranks': An example of fad economics occurred in 1980, when a small group of economist advised Presidential candidate, Ronald Reagan, that an across-the-board cut in income tax rates would raise tax revenue. They argued that if people could keep a higher fraction of their income, people would work harder to earn more income. Even though tax rates would be lower, income would rise by so much, they claimed, that tax revenues would rise. Almost all professional economist, including most of those who supported Reagan's proposal to cut taxes, viewed this outcome as far too optimistic. Lower tax rates might encourage people to work harder and this extra effort would offset the direct effects of lower tax rates to some extent, but there was no credible evidence that work effort would rise by enough to cause tax revenues to rise in the face of lower tax rates. People on fad diets put their health at risk but rarely achieve the permanent weight loss they desire. Similarly, when politicians rely on the advice of charlatans and cranks, they rarely get the desirable results they anticipate. After Reagan's election, Congress passed the cut in tax rates that Reagan advocated, but the tax cut did not cause tax revenues to rise.[59][60]

Gregory MankiwThinkers

Gregory Mankiw