Posted on 06/09/2012 4:07:54 PM PDT by BfloGuy
It’s been the prevailing economic philosophy of the Republican Party since Ronald Reagan was elected president in 1980.
Supply-side economics held that reducing marginal tax rates would spur economic growth, create jobs and even generate tax revenue for the government.
And it makes sense in theory: If people keep more of what they make, they would logically work harder, spend more and hire more people, right?
When you listen to supply-siders like Arthur Laffer, Stephen Moore and Larry Kudlow, they always extol the Kennedy-Johnson tax cut of the 1960s and especially President Reagan’s tax cuts of the 1980s.
But they rarely mention the 1990s or the 2000s.
Maybe that’s because those two decades were almost a perfect controlled experiment that shattered their pet theories: President Bill Clinton raised marginal tax rates and the economy boomed and jobs were plentiful. President George W. Bush cut them and we got only modest job growth.
In fact, there’s more and more evidence suggesting that lowering marginal tax rates doesn’t create many jobs at all.
(Excerpt) Read more at marketwatch.com ...
Critics of tax cuts as economy-stimulators never, ever take note of the effect of Fed policy.
Soon upon taking office, Ronald Reagan got Congress to pass his legendary income tax cuts. The economy promptly went into a tailspin -- one which the Democrats predictably blamed on the same cuts they'd just agreed to.
Never mentioned was the fact that Fed Chairman Volcker (my hero) was reducing the money supply severely to wring out the double-digit inflation of the Carter years. A recession was not only inevitable, it was planned. Reagan understood (our only president to hold an economics degree) and allowed Volcker to continue because he understood that inflation would kill us.
As long as we have a monetary system that allows for the printing or the destruction of money at will, tax cuts cannot be the sole deciding factor in the course the economy will take. Republicans seem clueless and Democrats, of course, remain dishonest in this discussion.
If the money supply remains stable, marginal income tax rate cuts and reductions in taxes on capital will always and everywhere spur economic growth.
Marketwatch is so in the tank for Obama and the democrats. Anybody who takes their investment advise seriously will end up on food stamps.
The major factor in the economic boom of the 90’s was the computer revolution. Every other factor, including the economic machinations of the government were swamped by a tidal wave of economic productivity.
Supply-Side works if the government cuts spending.
“The major factor in the economic boom of the 90’s was the computer revolution” WRONG!! The MAJOR factor in the economic boom of the 90’s was the FACT of GINGRICH and the US House GOP Class of 1994!
Bingo! What did Bill Clinton do to create the dot-com explosion? Perhaps we should credit AlGore since he was the one who invented the internet? :=)
"clearly had nothing to do?" -- soft and squishy analyses against a supposed hard target.
Unless and until any of these so-called "economics experts" can describe the difference between "supply/demand" and "quantity supplied/quantity demanded" they are just paper tigers.
But also the number of politicians and posters, here and elsewhere, also is close to zero.
*sigh* I remind myself how economically ignorant we are.
It’s time to bury the tax and spend, leftwing rag, Market Watch.
Classic WTF journalism!
Vomit. Can’t wait until someone at Heritage or AEI takes this man to pieces.
That’s the plan.
What a bunch of idiots.
Clinton also created the largest mostly permanent tax increases in American history to date, and introduced the taxing of Social Security Benefits (even though Big Brother keeps reminding us that Social Security income alone is inadequate to live on) Thank you First Rapist. I tried putting ice on it, I still get less than I used to.
And that it also made the Contract with America inevitable is also never mentioned.
If the Federal government spends money by the billions$ 24/7 and grabs control of all the means of useful production in the country (look up 'fascism,') NO FREAKIN' ECONOMIC SYSTEM (other than cognitive dissonance) CAN EVER WORK!
D'UH!!
Seldom do people mention the dot com bust or real estate bust when blaming George Bush for slow growth. These disasters had nothing to do with supply side economics. But we do know that trickle down economics does not work, Send massive amounts of money to Washington and hope it “trickles” back to job creating programs.
Tax rates don't mean anything when you wipe out all the hundreds of ways not to pay taxes, and that is what the 86 bill did!!!!
It effectually shut down the home/apartment building market that the wealthy used to convert all their taxable income to long term capitol gains, same for aircraft, machinery, etc. and anything depreciable.
Capital gains rates were cut which leads to supply side prosperity.
Lower taxes leads to more savings which leads to more investment which leads to more productive expenditure which may or may not lead to more demand for labor.The more productive expenditure could lead to more demand for capital goods instead, which might hold down increases in demand for labor.
So one cannot directly link lower taxes to job creation. It helps but does not cause.
Nilly Clinton spent our Cold War winnings and the bounty of the most productive years of the baby boomers and left us penniless.
Naturally, he’s a hero to the left.
I agree which is why I scrupulously refrained from adding creating-jobs into my post. Creating jobs is a function of confidence in the future.
Bill “Projected Surplus” Clinton.
Thank you for saying that; it's too often forgotten. Giving Clinton credit for the GINGRICH boom is like giving the rooster credit for the dawn.
Gold intentionally left out the long term Capital Gains tax rate was cut to 20% in 1997 that led to a huge amount of cash freed up as investors sold and reinvested which created jobs and also tax revenues.
His article is fundamentally flawed leaving out such a huge part of the Clinton tax structure in the 90s that is has no credibility.
Next...
The author totally ignores the invention of the Internet and networking and the resulting revolution in productivity to drive economic growth. Tax policy in the 90’s had little to do with economic growth.
You know, on second thought it's even worse than that.
Clinton fought all the Gingrich reforms tooth and nail before taking credit for their success.
False. The GOPe hates supply side economics along with all the other big government politicians.
I didn't know that was the new definition of "trickle-down economics."
Who is this, anyway?
Is that you, Odumbo??
The Federal and State governments had no idea why the economy was doing well in the 1990’s. They were completely clueless.
The Fed, likewise, had zero idea of what was happening and why.
The government can’t fathom productivity, they actually believe that interest rates and money supply are the primary driving factors in an economy.
If you could pull out the economic impact of:
1) ERP software
2) the web
3) Y2K consulting
which caused the earnings of millions of Americans to skyrocket...
the economy would have been decidedly laggard. All consumer spending on cars, homes, clothes, travel, etc., etc., would have been miniscule compared to what it was.
ERP software firms very purposefully kept their software as proprietary as possible so as to make knowledgable and capable consultants as rare as possible, with the number of them lagging the demand for them.
They also very purposefully artificially made the implementation of their software by their customers to be very labor intensive and complex.
These strategies pushed up the price of consulting services dramatically.
This made the whole idea of implementing their software attractive for the employees of their customers, as the employees would be learning highly marketable skills during the implementation.
At the same time this is happening, every business suddenly needed a website and had no experience with doing that since it was a new field.
Y2K consulting became every more lucrative as companies saw 1/1/2000 approaching, realized that a lot of their current software would malfunction, and became desperate.
Licensing ERP software was a way to shift responsibility to the ERP software vendor and consultants, since the software vendors advertised Y2K compatibility and the software packages would include any last minute updates - if any - that were necessary to get through the changeover. In the latter half of the 90’s Y2K drove new ERP business dramatically.
It was precisely because the government had no idea what was happening that allowed the internet to be a profitable business without government legislating it into oblivion, taxing it to death and allowing big-business lobbyists to push legislation to monopolize it.
Now that the government as a whole has gotten up to speed a bit more in the past few years, they are foraying into internet regulation.
Since all that software work is done, and the initial learning has taken place and the systems are in maintenance mode, much less labor is involved. Since we have way more knowledgeable people than necessary in those fields, the number of people in those fields has dramatically dropped from February 2000 levels.
All three of those fields had a purpose, so there was something real to be gained by businesses spending on them.
Trouble is now, there is no new purpose that is necessary or useful that is no simply an incremental change to what we have now.
It will be quite some time, probably decades, possibly 100 years or more until we see a significant invention (one that requires significant new and different hardware and significant new consulting) that is actually entirely new and not a simple alteration or combination of existing technology, and the new invention is necessary and worth spending money on. Given today’s availability of mobile computers, the ubiquity of internet connectedness and the power and functionality of computers, there’s not much else needed to be able to rather easily write software to do most anything.
The artificial pump up is over, and government did not take advantage of the tax windfall to pay down debt, so they missed their one-shot chance at doing that with very little pain.
Therefore, Congress and Clinton were baboons in the 90’s. Not only did they not create the good situation, or even know what created it, they missed out on using the windfall that was clearly due to peak in February 2000 as a stepping stone to making government sustainable.
How is it that the majority of us here are eons smarter than the wizards of smart that get printed in popular media. Or maybe people like Howard Gold are just disingenuous, and know they are lying.
Mr Gold ignores the capital gains and dividend rate cuts that just coincidentally occurred just before the boom of the late 90s. He also ignores that in the immediate aftermath of the Clinton tax increases, we were seeing modest at best growth. I remember specifically we were sitting around 2.3% GDP growth immediately before his reelection. The boom came after that as the Internet took off, Real Estate started going into its bubble, and Y2K drove IT spending....and after the Congress forced a balanced budget plan and lower investment taxes. I am sure none of those had any impact. It was the higher taxes on personal rates.
Also, under Bush, we had a sustained period of strong growth and extremely low unemployment in the years following his tax cut. I am sure that is a coincidence, too. It is also a coincidence that our economy has slowed to a dull murmur with a death rattle since the moment Obama was to become President and was hanging a variety of higher tax rates over our heads. All coincidences to this jackass, Howard Gold.
which congress sandbagged Reagan on.
You forgot the barf alert....
The article conveniently ignores that the boom of the 1990’s was caused by the explosion of e commerce with its wave of worldwide innovation centered here. No one in government caused the boom. It occured completely independently of govnernment actions. But Clinton and Algore repeatedly tried to take credit for it though they had nothing whatsoever to do with it.
Mr. Gold says that cutting marginal tax rates on the wealthy does not cause them to work “harder.” But how does he measure this? Most upper-income people are already working full time (or overtime), so of course they cannot work longer hours. However, they can start new enterprises, and they have more to invest, when their tax load is reduced.
Investment by individuals is done through the market process, and is thus more efficient that government “investment” or the results of “targeted tax cuts.”
It is efficient investment which improves the economy. Heavier taxation merely destroys potential capital, or misapplies it (which amounts to the same thing).
Always remember the fundamentals: capital is tools. People with tools multiply the results of their efforts. People with labor alone (bare hands!) can barely survive. Indeed, in most places, and at most times in history, people without tools starve and die out; or they may be enslaved by their neighbors.
One thing which distinguishes humans from animals is that humans have and use capital. Taxes limit and destroy capital. Income taxes, corporate taxes, and inheritance taxes are systematic handicaps to an economy.
A half truth is often way more effective than an outright lie.
There was supposed to be a three dollar reduction in spending for every $1 increase in taxes. That was the deal the Democratic congress agreed to with the president.
Never happened.
Reagan went to his grave waiting for the integrity of the 'Rats to emerge.
Notice the recycling of Unconstitutional smoke and mirrors? The Obamacare Monster law promises benefits 3 years down the road, but increased taxes and existing health care premiums skyrocketed immediately.
Why did the GOP fall for that old trick ------ again?
More to the point perhaps, why did the informed, employed, working non-governmental taxpayer?
Don’t forget the Internet.
In totally unrelated news 2 + 2 is no longer = 4.
They really are. They counsel against buying gold when balance sheets have tripled. Now they think that high taxes promote economic growth. Wow. They might as well say that going to prison builds character. These guys just want us all to put all our money in stupid stocks like Facebook, so that the insiders can short us.
Mr. Herbert Gold is a sophomore in the original sense of the word: a wise fool. He can make tables and graphs, but is unable really to demonstrate causality in his arguments. It is because he seems not to understand economic theory.
He quotes several studies which could not fund that marginal tax rates make any difference to the economy. This is pure idiocy. If marginal tax rates make no difference, why don’t we raise them all to 100%? Obviously they make a difference.
Here is one way: high marginal rates drive a certain proportion of the people from being tax-payers, to being dependents and beneficiaries of state spending. Such people are now no longer in the tax-payer category, so their misfortune is no longer detected by such dumb studies as those cited by Mr. Gold.
It is incredible that misinformed people like Mr. Gold actually have the public ear on things which he so little understands. I find it difficult to keep a polite tone when contemplating such ignoramuses.
I’m still waiting for these leftards to explain how trickle-down doesn’t work but stimulus spending does.
Even if one ignores the psychological effects of tax rates, one should consider what rich people do with their money. Generally, they want to use it to make more money, which means that they invest it in things which will generate wealth. Any dollar the government steals from a rich person's pocket is a dollar the rich person won't have to invest in a wealth-generation enterprise.
While it's true that rich people don't feed all of their marginal income into investments and wealth generation, so stealing $1 from someone won't reduce the investment in wealth generation by a full dollar, the percentage of a rich person's marginal income which gets fed into wealth generation is apt to be much higher than the percentage of government money that funds wealth creation.
Taking money from people who would use it to generate more wealth, and giving it to people who will regard it as an encouragement to become more dependent upon government, could not possibly be a recipe for prosperity, even if it had no effect on wealth generators' work ethic. Can anyone offer a plausible explanation of how wealth is supposed to be created if capital is taken from those who would effectively use it to create wealth?
Shouldn’t we put a silver bullet through the heart of Keynesian economics first? It sucks the blood out of the economy.
If the libs want to give Clinton credit for the job boom in the nineties, they’ll also have to credit him for the Nasdaq fiasco which lost about 75% of its valuation. They don’t ever bring that up. Sure, Clinton raised taxes early on, but he apologized for it and under pressure from Republicans in control of Congress, cut cap gains taxes...which cut the deficit. So Clinton acted like a Republican at times, and the economy boomed. If raising taxes was the presciption for a booming economy, then raising tax rates by fifty percent would insure everyone would be a millionaire. Bogus theory.
Mjp is on the right track but its a bit more complicated. The amount of revenue realized from income is primarily determined by the total number of workers paying taxes. The tax rate on income contributes to a workers perception of what their labor is worth. If they can’t take home enough money after taxes based on this perception they won’t accept the job and no tax revenue is generated. This is why we accept the Marxist notion of progressive tax rates. If you can make $250,000 a year you accept a higher rate as long as what you take home for your effort still meets your expectation of worth. At some point the work is “just not worth it” an you either find a way to avoid taxes (cash, barter, tax shelters, deferral) or you don’t do the work. Either way the tax revenue is lost to the government.
The governments main focus should be to create the optimum environment that results in the greatest number of people working for the highest wages based on their productivity. This is best done by minimizing regulation, red tape, and bureaucratic obstacles to business formation. Growing the pie is a win for everybody including the government. Tinkering with tax rates beyond the extremes just contributes to class warfare and envy.
I really like this guys stuff:
http://keithhennessey.com/2010/11/18/president-george-w-bushs-spending-record/
He makes a lot of sense
Its easy to spin economics anyway one wants to
You mean the dot-com bubble. It created a huge unexpected revenue stream to the US government, and when the bubble burst, accumulated losses reduced revenue streams to the US government for years after Bill Clinton was long gone.
You mean the dot-com bubble. It created a huge unexpected revenue stream to the US government, and when the bubble burst, accumulated losses reduced revenue streams to the US government for years after Bill Clinton was long gone.
Debt. In the overall view. Our prosperity has been in large part due to borrowing to pay later. But, later is here and we don't have the money.
So Reagan, grew the economy. He also grew Gov't. We haven't had a President or congress cut debt or spending in our lifetime. Gingrich and crew, did not cut Gov't.
So we have piled up over 15 Trillion in public debt. And this all we have to show for it. That does not even include social security and the other scams. Student loans, housing, the list goes on.
Cutting taxes if fine. But pay for it! One cannot cut taxes and then not cut Gov't! By not cutting Gov't certain individuals now end up with a better private gain, but the load of debt is now put on the backs of the citizen.
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