Why the GOP Won't Admit Supply-Side Econ Has Failed

The Republican Party has long promoted itself as the party of business. Republicans understand the needs of business, we are told, and if the country would leave the economy in their hands business would boom. All we need to do is to give those at the very top of the income distribution – the “job creators” – more income through tax breaks, and then sit back and wait for the magic happen. Our investment in the wealthy will produce remarkable economic growth, and everyone will be better off.

The Bush tax cuts were a test of these claims about supply-side economic policies. To justify the tax cuts the nation was, in effect, given a business prospectus from the Republican Party. We were promised that cutting taxes on the wealthy would result in much higher economic growth and broadly shared prosperity. For those who wondered how we would pay for such a large cut to the government’s revenue stream, the Republican prospectus had a remarkable claim. The tax cuts wouldn’t cost us anything. Growth would be so strong that the tax cuts would more than pay for themselves. Even those who admitted that the tax cuts might not be fully self-financing still made strong claims about faster economic growth offsetting much of the lost revenue from the tax cuts.

The reality, of course, has been quite different. There is little evidence that the Bush tax cuts, or any other tax cuts directed at the so-called job creators, have had a noticeable effect on economic growth. And the promise of broadly shared prosperity has not been realized. Most of the gains from economic growth in recent decades have gone to the top of the income distribution while the inflation adjusted wages of the working class have been relatively flat. Furthermore, the tax cuts have not paid for themselves as promised, and it hasn’t even been close. The Bush tax cuts have already cost us trillions in revenue, and if they are extended for high income tax payers, they will cost us roughly another trillion over the next decade.

The failure of Republicans to deliver on their promise that tax cuts would be mostly self-financing is a large factor in the deterioration in our long-run fiscal outlook, and it is putting considerable pressure on programs such as Social Security. In fact, the Bush tax cuts can be thought of as a loan from the Social Security Trust Fund that was supposed to be paid back with the revenues from higher economic growth, a loan that is presently in default.

To see this, recall that the government began intentionally collecting a surplus from the Social Security program beginning in 1983 in order to prefund the retirement needs of baby boomers. The idea was to run a surplus for several decades while the baby-boomers were still working to get ready for the deficit years the system would experience after they retired.

The revenue from Social Security over and above what was needed to fund payouts reduced the overall government debt and allowed taxes to be lower than they could have been without these surplus funds. For example, the surplus that Bush inherited from the Clinton administration was largely due to the Social Security Trust Fund, and Bush argued it would be better to give this surplus to the private sector through tax cuts than to leave it in the hands of the government. But it wasn’t better. The income of the wealthy grew as they pocketed the tax cuts, but workers experienced stagnant wages, a recession that hit working class households particularly hard, and intense pressure to cut important social programs.

Despite their failed promises, the Republican Party is asking that we extend the tax cuts for the wealthy, and some are even calling for further reductions in tax rates. However, if the Republican Party is truly the party of business, then surely it will understand that no responsible financial institution would continue to invest in a business that failed meet, or even come close to the growth and revenue projections that justified the investment in the first place. The payoffs from tax cuts that were promised during the Bush years have not been realized, and the failed promises about growth and revenue have damaged the health, education, and retirement programs the working class depends upon in our increasingly globalized economy.

A true party of business would end our investment in the false promise of supply-side economics. However, a party with a goal of reducing the scale of programs such as Social Security and Medicare along with delivering tax cuts to wealthy political backers would use arguments about the economic effects of tax cuts to disguise its true intentions. Which description fits best? Many Republicans still claim that tax cuts for the wealthy enhance economic growth despite the evidence to the contrary, but it’s rare to hear a Republican admit that these supply-side policies have failed.

Wow, seriously? “like communism?” I smell a troll. At any rate, in the 1980s, the Reagan cuts MORE than paid for themselves. Revenue went up 40% (see my book, “American Entrepreneur”). But spending increased by 100%. If we just held spending constant in 1984 terms, the tax cuts not only would have paid for themselves but SOME additional spending as well.

The concentration of wealth is a problem. And as the Government (at all levels) controls more and more of GDP the problem gets worse. There’s a REAL correlation there.

If we had an environment of honest fair competition the differences would collapse. As we transition to crony capitalism (fascism) it will get worse.

Absolutely not. Bush never invoked full supply side cuts. When it is stuck to, you have miracles. When you "compromise" and raise taxes to address deficits---ALL CAUSED BY HIGHER SPENDING---then you lose the supply side impact.

Supply side has been tried four times and works every time.

There is little evidence that the Bush tax cuts, or any other tax cuts directed at the so-called job creators, have had a noticeable effect on economic growth.

Economic growth is increased by an increase in savings and investment, and investment increased in the Bush years, prior to the recession.

US Venture Capital Investment data by YCharts

Production also increased.

US Industrial Production Index data by YCharts

The flaw of supply side economics is that tax cuts must be accompanies by reductions in government spending. When government spending increases, this allows the value that was achieved by the tax cuts to be lost or wasted through the corresponding enlargement of federal budget deficits. Growing deficits are an assault on the economy because they have to be financed by creating money out of thin air and inflation, too much borrowing and growing national debt, and the need to raise taxes later.

Nonsense
It’s not nonsense

Perhaps you have an empirical study that does show a statistically significant link between marginal rates and GDP growth

Don’t need a study. Just need to know several small business owners, which I do. When the Government taxes them less, they all expand their business, number of employees or increase their employees compensation. When Government taxes them, they contract their business, for go raise for the employees in order to keep them employed and cut other benifits.

Now that we have established that supply-side economics is a myth, we can justify raising taxes that the “rich” will bear the largest burden of paying. Nevermind that the tax revenues won’t come close to covering the national debt or out-of-control spending. The US government is the last entity I would look at as a good business model to emulate.

I was poor as a church mouse growing up. I never looked in envy on the rich. I looked at them and thought “how do I get there.” And, I worked hard and succeeded. If I had been willing to work harder, I would have succeeded even more. If you aren’t where you want to be, blame it on your own efforts (or lack thereof). EVERYONE in America still has the opportunity to succeed. Concentration of wealth goes away when the masses focus more on their own efforts rather than handouts!

Could it be because at least half of our business community has built enterprises centered on the business model of sucking off the government teat? I subscribe to the Pittsburgh (Communist) Business Times whose pages are full of CEO’s and “entrepreneurs” who are always whining that “the government is not doing enough for ME!”

And for those watching but don’t want to follow the links, here’s the money quote:

Based on Bush fiscal policies, the nonpartisan Congressional Budget Office projected budget deficits of 0.7% to 1.5% of GDP for the years 2008 through 2011. The CBO even predicted surpluses for the subsequent years through 2018.

Since when was supply-side ever really in place? Sure, Reagan talked about it, but was it ever really implemented properly?

Reagan came the closest, so it's been over 20 years. Almost all politicians including most Republicans hate supply side economics, because it generally benefits the private sector and makes people less dependent on government.

Cutting tax rates to propel the economy is the cornerstone of supply-side economics, a discipline with which Dole, to put it mildly, has never been identified. In the 1980s, he used to joke that he had good news and bad news. The good news: A bus carrying supply-siders had gone over a cliff. The bad news? "There were three empty seats." Ha ha.

The point of “tax cuts” is a kind of judo to limit government by limiting the income. It doesn’t work, because no one has the political will to actually limit government. So all of our quibbling about tax rates is just eye-wash when the budget is in full-on deficit year after year.

If your government costs twice the money you bring in, your government is twice the size you are willing to pay for and you have to admit it or go bankrupt. No tax increase is every going to make up two trillion dollar deficits, but no one has the nerve to actually reduce the size and scope of the government.

Even our present arguments about the “fiscal cliff” are bogus. Tax increases they propose only cover maybe a tenth of the deficit, which means we continue to print money. We passed the fiscal cliff the same time we passed the real debt ceiling, which is when we issued debt and no one would buy it. That was a couple of years ago, we’ve been printing money ever since and still no one has had the nerve to cut anything.

This piece is nothing but an disgusting attack on our free-enterprise system.

It it written by someone who is very envious of others success.

I strongly suggest you tell the author to study the works of Milton Friedman, Hayek, Ludwig von Mises and Sowell among others.

Your thinking has an anti-capitalist, anti-Libety streak.

Whoever wrote this garbage sees our hard earned income as first belonging to the State, with scraps to be passed back to the producers.

Whoever wrote this garbage is trying to hide their jealously and hatred of the successful.

Whoever wrote this garbage has a mindset more suited to the DUmp.

Our Federal Imperial government is in the final stages of destroying what remains of our Free Enterprise system. It is debasing our currency, regulating every aspect of our lives. Those in power crave absolute control yet know they can't yet achieve it. The evil of sadistic government at all levels is enveloping us all.

And you have the gall to show us this garbage as if somehow taxing the rich a little more, or adjusting these rates a little more will solve anything?

Get Real.

“This is like blaming free markets for poverty when we haven’t had free markets since the Civil War”

While holding the definition of poverty as the lowest 20% of the incomes, therefore we always have them, regardless of their actual wealth.

Laffer Curve? ever heard of it?

Also a recession or what we have now (slow GDP growth) is
when economic activity contracts because of risk aversion among other things,
Why risk money to make money if its going to be confiscated

The chart you want is probably out there somewhere, but most of this is common sense

Eventually the spending catches up to you. Because supply side means a lot of deficit spending, and that will always lead to disaster as the interest on your deficit keeps climbing and climbing and more and more of your spending is just paying off the past and less and less is actually is being supply side anymore. What makes supply side work is that it’s supposed to be temporary, eventually there are cuts, which as we both point out should have been done by Bush, but he didn’t. Now we’re entering our 4th decade of supply side spending, and it doesn’t work anymore. Now we’ve got to bite the bullet of major cuts to undo 25 years of over spending.

Could it be because at least half of our business community has built enterprises centered on the business model of sucking off the government teat?

Plenty of corporate welfare and crony capitalism being practiced around the nation at the federal, state and local levels, and it's engaged by libs and so-called conservatives alike. Texas, of all places, is rife with it.

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