"CUT TAXES AND WE WILL PROSPER DON"T TAX THE WEALTHY"
Insanity, said Albert Einstein, is doing the same thing over and over again but expecting different results.
Remember Ronald Reagan and Supply Side Economics? In the early 1980s, Reagan promised the nation that if we lowered tax rates on the wealthy, the economy would grow so much the federal budget would be balanced "within three years, maybe even two."
Sober people were skeptical-and rightly so. Reagan's Republican opponent for the 1980 presidential election, George H.W. Bush called it "voodoo economics." His own Budget Director, David Stockman, called it a "Trojan horse," a scam intended really to funnel more money to the already rich. Stockman was quickly dismissed.
The results, we now know, were a disaster. In 1982, the first full year after the tax cuts were enacted, the economy actually shrank 2.2%, the worst performance since the Great Depression. And the effect on the federal budget was catastrophic.
Jimmy Carter's last budget deficit was $77 billion. Reagan's first deficit was $128 billion. His second deficit exploded to $208 billion. By the time the "Reagan Revolution" was over, George H.W. Bush was running an annual deficit of $290 billion per year.
Yearly deficits, of course, add up to national debt. When Reagan took office, the national debt stood at $994 billion. When Bush left office, it had reached $4.3 trillion. In other words, the national debt had taken 200 years to reach $1 trillion. Reagan's Supply Side experiment quadrupled it in the next 12 years.
Is there anything to compare this to? When Bill Clinton took office he intentionally reversed the Supply Side formula, raising taxes on the wealthy and reducing them on the lowest wage earners. Supply Side true believers predicted the arrival of the Apocalypse. Bob Dole said the stock market would collapse. Newt Gingrich said the world would fall into another Great Depression.
What actually happened?
Between 1992 and 2000, the U.S. economy produced the longest sustained economic expansion in U.S. history. It created more than 18 million new jobs, the highest level of job creation ever recorded. Inflation fell to 2.5% per year compared to the 4.7% average over the prior 12 years.
Clinton reversed the mammoth deficits of the Supply Side years, turning them into surpluses. He used these surpluses to begin paying down the national debt.
By virtually every meaningful measure-employment, growth, inflation, interest rates, investment, deficits and debt-the economy performed better once the Supply Side experiment was terminated and replaced with a more honest economic policy where we actually pay our bills as we go.
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3 comments:
Truer words were never spoken. Fortunately, supply side economics is intellectually dead. The people that wanted to "starve the beast" instead have effectively prevented us from having lower tax rates for generations to come.
The worst fact? The massive supply side deficits were during times of growth - when rational actors would have been saving for the recessions that would surely come.
Tax cuts then meant higher taxes in the years ahead.
Great post, Terry.
The Democratic formula is to spend during times of recession because "we need to stimulate the economy" but...we also need to spend during times of prosperity because it is "justice".
We don't have a tax problem baby, we have a spending problem.
Jim:
I completely miss your point. We need surpluses to pay down the debt (like Clinton did) that will be run up during recession. Having deficits during growth is as bad as it gets and it has been the GOP model for 30 years now.
Just list the programs that should be eliminated. You can find the budget online or pick up the World Almanac and Book of Facts. You will not come up with a politically feasible way to eliminate any large program. Obama can't do what Clinton did - GWB made matters much worse in the eight intervening years. That's right - it is Bushes fault.
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