Economics for Dummies

[José]

Economics for dummies

By Ralph R. Reiland

Monday, September 24, 2007

It's not hard to understand supply-side economics. High taxes slow down economic activity. That's why we tax cigarettes.

On a larger scale, the Kennedy-Johnson tax cuts in 1964, reducing the top marginal rate on income over $400,000 from 91 percent to 70 percent and cutting the bottom rate from 20 percent to 14 percent, produced an upsurge in investment, an increase in overall economic growth, and a decrease in unemployment from 5.2 percent in 1964 to 3.8 percent in 1966.

Kennedy explained his upcoming tax cuts in a 1962 address to the Economic Club of New York: "The final and best means of strengthening demand among consumers and business is to reduce the burden on private income and the deterrents to private initiative which are imposed by our present tax system, and this administration pledged itself last summer to an across-the-board, top-to-bottom cut in personal and corporate income taxes."

And the impact on the deficit if taxes are cut? "It is a paradoxical truth," said Kennedy, "that tax rates are too high today and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now."

The purpose of the tax cuts was "not to incur a budget deficit," he said, "but to achieve the more prosperous, expanding economy which can bring a budget surplus."

The choice, Kennedy asserted, was "between two kinds of deficits: a chronic deficit of inertia, as the unwanted result of inadequate revenues and a restricted economy, or a temporary deficit of transition, resulting from a tax cut designed to boost the economy, increase tax revenues, and achieve, I believe -- and I believe this can be done -- a budget surplus. The first type of deficit is a sign of waste and weakness; the second reflects an investment in the future."

As it turned out, federal income tax revenues, adjusted for inflation, increased at an average yearly rate of 2.1 percent in the four years prior to the Kennedy tax cuts and increased at an average yearly rate of 8.6 percent in the four years after the tax cuts.

Similarly, Reagan's across-the-board tax cuts in 1981 and 1986, reducing, for instance, the top federal income tax rate from 70 percent to 28 percent, produced a dramatic turnaround in a failing economy.

"Let's remember what things were like when Reagan took over," explained Edwin J. Feulner, founder and president of The Heritage Foundation. "In 1980, inflation was running at 13.5 percent, the prime leading rate stood at 21.5 percent, unemployment and poverty were rising, real income and productivity were falling, and real economic growth had ceased."

And after Reagan's supply-side prescription was applied? "The results: the largest peacetime economic boom in U.S. history and nearly 20 million net new jobs," Feulner said.

Additionally, inflation fell from double digits in 1980 to 1.9 percent in 1986, federal revenues increased by nearly half a trillion dollars over their 1980 levels by the end of Reagan's second term, the federal budget deficit fell from 6.3 percent of GDP in 1983 to 2.9 percent in 1989, and unemployment dropped from 7.1 percent in 1980 to 5.3 percent in 1989.

None of the aforementioned results should be too surprising. "When people are prohibited from reaping much of what they sow, they will sow more sparingly," said James D. Gwartney, economics professor at Florida State University and, previously, chief economist of the Joint Economic Committee of Congress.

Higher tax rates, in short, discourage work effort, reduce business investment, expand joblessness, and restrict economic growth -- and will, eventually, shrink the tax base, as evidenced by an overtaxed and shrinking Pittsburgh.

Still, some people, otherwise bright, can't seem to understand the obvious.

Jonathan Chait, for instance, a senior editor at The New Republic, warned in the magazine's Sept. 11 cover article -- "Feast of the Wingnuts: How Economic Crackpots Devoured American Politics" -- that the United States has been "hijacked by a tiny coterie of right-wing economic extremists, some of them ideological zealots, others merely greedy, a few of them possibly insane."

Chait spotlights early supply-siders Jude Wanniski and Arthur Laffer as the quintessential examples of the possibly insane: "Wanniski and Laffer believed it was possible to simultaneously expand the economy and tamp down inflation by cutting taxes, especially the high tax rates faced by upper-income earners."

In fact, that's exactly what happened.

http://www.pittsburghlive.com/x/pittsburgh…n/s_528983.html

[Jesrad]

Bien fait pour cet abruti de Chait. Ça lui apprendra à utiliser l'Union Soviétique (en se trompant sur les faits, en plus !) comme modèle dans ses articles.