September 26, 2010

Supply side economics supposed to increase revenue, right?--Updated

That is what we have been told. I will have to pull out my notes on my Reagan lectures, but as I recall, I talk about the role that David Stockman played in pushing the Laffer curve idea that justified the massive tax cuts in Reagan's first term. But I also seem to remember that Stockman later admitted that the "trickle-down" or even the "supply-side" ideas were largely fiction. They just wanted to cut taxes on the rich.

But that idea has become gospel. As I have said here, I think that many of those tax rates needed to come down, and that targeted tax cuts can be stimulative. But the idea that you cut taxes, period, is simply irrational, and that is the description of the GOP economic policy.

This morning, I caught this interview with David Stockman and saw this, among other great lines:
RAZ: David Stockman, let me ask you about the idea of making the Bush tax cuts permanent. Some economic analysts have said that if you do that, that by the year 2020, the government wouldn't have enough money to spend on anything except for Medicare, Social Security and defense if it's lucky. Do you think that sounds about right?

Mr. STOCKMAN: Yes, I do. We couldn't afford the Bush tax cuts when they were put in in 2001, 2003. Now, we're - eight years later, we're trillions in additional debt later, we're two unfinanced wars later, we're a trillion dollars of stimulus spending later, 800 billion of TARP, so it's pretty obvious if we couldn't afford them back then, in no way, shape or form can we even dream about affording them now.

Stockman is not nice about Obama wanting to cut middle class taxes either, and I rather agree on that. But it is nice to see one of the architects of this madness admit what we have said around here for years--that we couldn't afford those tax cuts then, and certainly not after two unfinanced wars and Medicare Part D--we sure as hell can't.

One note, btw. Stockman includes TARP, which I know is not very popular, but everything I have read suggests that we will get all of that money back. It worked. It wasn't pretty, and it included helping a lot of bad people, but it worked.


Bootlegger sent me this on comparing our tax rates now to Reagan and Eisenhower as well as this convenient historical chart on tax rates. Those Tea Party members who claim to be "taxed enough already" are delusional. They are angry because they have been told to be angry.

But for those who claim to be super-patriots from this group, they should note the tax rates during our wars--until Bush and company took over. That was when we actually agreed to band together. Don't preach to me about your patriotism when you refuse to pay for the wars you supported.


Bob said...

My Dad always said that the super high tax rates of pre 1980 (90% on $200,000+ etc.) were fiction because there were so many deductions.

Any source on if this is true?

Streak said...

Bob, I don't doubt there were a lot of deductions, but two things are pretty evident. Rich people resented those high taxes enough to push heavily for serious reductions, which makes me think that some of them were paying. In addition, tax revenues have declined (as a percentage of GNP), so something happened to our revenues.

Bob said...

Part of my point is that despite everyone freaking out about those huge rates, they weren't actually paying those huge rates. Keep in mind the rich normally have more deductions.

I just wonder if they lowered the rates and kept the deductions.

Streak said...

Oh yeah, I see your point. I do know that a lot of people misunderstand the marginal rate and assumed that the rich were losing 90% of their income to the government. One of my operating assumptions is that our tax code has never made a rich person non-rich, if that makes sense.

Bob said...

"I do know that a lot of people misunderstand the marginal rate and assumed that the rich were losing 90%"

If people understood tax brackets, the progress tax rates would be far more popular. Very stupid people think that if they move $1 into the next bracket, they suddenly pay hundreds of dollars more in taxes.

After doning her taxes on turbo tax, my not so smart sister-in-law once remarked if only they had made a few dollars less in income, she would have paid $1,000 less in taxes. I told her to redo her taxes or seek an accountant.

Streak said...

Wow, that is a great example, Bob. I remember some of the idiots saying they were going to "go Galt" and make less money so they wouldn't have to pay more in taxes. one example was someone who was going to sacrifice 70,000 in earnings to avoid paying a few thousand in taxes.

leighton said...

Ha, going Galt. Reminds me of the quote that's been making the rounds lately:

There are two novels that can change a bookish fourteen-year old’s life: The Lord of the Rings and Atlas Shrugged. One is a childish fantasy that often engenders a lifelong obsession with its unbelievable heroes, leading to an emotionally stunted, socially crippled adulthood, unable to deal with the real world. The other, of course, involves orcs.