supply-side economics

economics

light bulb joke

is a debate that can now be declared effectively put to bed as fanciful since it has been proved that the effective revenue generating effects of specific tax cuts would be at best 'relatively small' and certainly not enough to cover the difference in tax loses.

In 2003, Alan Murray, who at the time was Washington bureau chief for CNBC and a co-host of the television program Capital Report, declared the debate over supply-side economics to have ended 'with a whimper' after extensive modeling performed by the Congressional Budget Office(CBO) predicted that the revenue generating effects of the specific tax cuts examined would be, in his words, 'relatively small.'[47] Murray also suggested that Dan Crippen may have lost his chance at reappointment as head of the CBO over the dynamic scoring issue.

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]

is a theory grounded in the laffer curve, which states that lowering tax rates generates more government because it generates more economic activity, leading to increased opportunities for tax revenues.

The Laffer curve illustrates a central theory of supply-side economics, that lowering tax rates may generate more government revenue than would otherwise be expected at the lower tax rate because moving off of a prohibitively high tax system could generate more economic activity, which would lead to increased opportunities for tax revenues.[10][11] However, the Laffer curve only measures the rate of taxation, not tax incidence, which is a stronger predictor of whether a tax code change is stimulative or dampening.[12] In addition, studies have shown that tax cuts done in the US in the past several decades seldom recoup revenue losses and have minimal impact on GDP growth.

is a wrongheaded theory of 'free lunches' and is responsible for budget deficits during the regan administration, thus proving the laffer curve wrong.

Critics of 'Reaganomics' claim it failed to produce much of the exaggerated gains some supply-siders had promised. Krugman later summarized the situation: 'When Ronald Reagan was elected, the supply-siders got a chance to try out their ideas. Unfortunately, they failed.' Although he credited supply-side economics for being more successful than monetarism which he claimed 'left the economy in ruins', he stated that supply-side economics produced results which fell 'so far short of what it promised,' describing the supply-side theory as 'free lunches'. .

is based on say's law, which states that supply creates its own demand. That is, it suggests that a product is no sooner created, than it, from that instant, affords a market for other products to the full extent of its own value.

Say's Law of economics, which states: 'A product is no sooner created, than it, from that instant, affords a market for other products to the full extent of its own value

is different from classical liberal economics (despite its respect for hume, swift, smith, hamilton). Rather than arguing that taxation is the immoral seizure of one's property, as they do, it argues instead that the main impetus for tax cuts is an alleged collective benefit (i.e. Jobs).

Bruce Bartlett, an advocate of supply-side economics, traced the school of thought's intellectual descent from the philosophers Ibn Khaldun and David Hume, satirist Jonathan Swift, political economist Adam Smith, and even United States 'Founding Father' Alexander Hamilton.[22]. . . . However, what most separates supply-side economics as a modern phenomenon is its argument in favor of a low tax rate for primarily collective and notably working-class reasons, rather than traditional ideological ones. Classical Liberals opposed taxes because they opposed government, taxation being the latter's most obvious form. Their claim was that each man had a right to himself and his property and therefore taxation was immoral and of questionable legal grounding.[Supply-side economist, on the other hand, argued that the alleged collective benefit (i.e. jobs) provided the main impetus for tax cuts.

is, in fact, not about raising revenue (as it claims) but rather is actually intended to be a smokescreen for starving the government of revenues in the hope that the tax cuts would lead to a commensurate drop in government spending.

It has been contended by some supply-side critics that the argument to lower taxes to increase revenues was a smokescreen for 'starving' the government of revenues, in the hope that the tax cuts would lead to a commensurate drop in government spending. However, this did not turn out to be the case on the spending side... Paul Samuelson called this notion 'the tape worm theory the idea that the way to get rid of a tape worm is [to] stab your patient in the stomach'.[57]

is ineffective in that the wealth of the super-rich does not trickle down to improve the economy, but tends to be amassed and sheltered in tax havens with a negative effect on the tax bases of the home economy.

A 2012 study by the Tax Justice Network indicates that wealth of the super-rich does not trickle down to improve the economy, but tends to be amassed and sheltered in tax havens with a negative effect on the tax bases of the home economy.

supply side economics, n.Definitions

supply side economics