What Supply-Side Miracle?

This commentary from The Washington Times by the "founder and editor in chief of the American Spectator," R. Emmett Tyrrell Jr., sings the praises of supply-side economics:

The supply-side miracle continues, by R. Emmett Tyrrell Jr., Commentary, Washington Times: It is very reassuring that Republican negotiators in the House and Senate have reached an agreement to extend President Bush's cuts in tax rates on dividends and capital gains. ... Now the unparalleled economic growth that has characterized the U.S. economy since the early 1980s can proceed. ...

We cut taxes to increase economic activity, to reduce the burden of taxation on workers to encourage their increased output. We cut taxes on investments, stocks and dividends to increase investments, stocks and dividends -- to increase wealth. That is what has been happening -- for two decades. ...

Those of us who favor tax cuts can now look proudly at the recent record of tax payments. ... Unburdened by high taxes, the rich paid more in taxes. By lowering marginal tax rates, we have encouraged economic vigor and put more money in the government's hands. This we call Supply-Side Economics. ...

Robert Reich has something to say about supply-side economics:

Robert Reich: Supply-side Crapola: Just about every week now I've been appearing on Larry Kudlow's CNBC TV show... I debate Steve Moore, from the editorial board of the Wall Street Journal. Larry is a card-carrying unrepentant supply-sider who still believes low taxes lead to faster economic growth, which trickles down to everyone.

Unfortunately for Larry, supply-side economics is one of those rare economic theories to have been tried in practice (the Reagan administration was the last full-fledged experiment) and failed miserably. By the end of the Reagan years, the federal budget deficit had ballooned and the only thing that trickled down was debt. The first George Bush was forced, finally, to raise taxes (despite what people may have read on his lips) because the bond markets were in full-scale revolt. By the time I got to Washington at the end of 1992 as head of Clinton's economic transition team, the U.S. budget deficit was $300 billion a year as far as the eye could see. Alan Greenspan made it quite clear that unless we raised taxes, cut spending, and brought the deficit under control, he and the Fed would keep interest rates high to avoid inflation. The rest is history. Clinton reduced the deficit, Greenspan cut interest rates, and the nation enjoyed the longest and most powerful economic expansion in history, including 22 million net new jobs and wage hikes for almost all Americans.

But now little Bush is doing another Ronald Reagan. He has cut taxes, especially on the wealthy. As a result, the deficit has exploded, median wages are stuck in the mud, the Fed is now busy raising rates, and we've had the most tepid economic expansion in thirty years. But none of this seems to dampen supply-siders enthusiasm. Every time I'm on the show, Larry claims all is well with the economy and urges Bush to cut taxes even more. I admire anyone who can stick to his guns when the guns are aimed at his foot.

Larry is a nice fellow and I enjoy sparring with him. Steve Moore is also a decent man even though he's associated with the most right-wing editorial page in modern American history. ...

While were at it, let's see what he thinks of the latest supply-side proposal to reduce taxes:

Robert Reich: Tax Obscenity: Here we are six months before a mid-term election, with polls showing only about 20 percent of the American public approving the job Congress is doing. The federal budget deficit is still out of control. We’ve got a war going on. So what’s Congress giving us now? A $70 billion tax cut.

The tax cut would be politically irresponsible, but not obscene, if it went to middle-income workers now facing sky-high fuel prices and soaring health-insurance costs, and variable-rate mortgage payments heading through the roof. But this tax cut is mostly going to people who are already very comfortable. Hence, it’s both irresponsible and obscene. 87 percent of the benefits of this tax cut will go to the 14 percent of American households earning above $100,000 a year. Twenty-two percent of the benefits will go to the richest two-tenths of one percent of American households earning more than a million dollars a year.

I’d appreciate it if someone could explain to me why we need another tax cut for high-income Americans especially when the gap between the rich and poor ... is wider than it’s been in almost a century. Some administration apologists, including the editorial page of the Wall Street Journal, claim repeatedly that the rich are paying a larger-than-ever share of income taxes, so it’s entirely fitting that they get the lion’s share of any tax cut.

This logic conveniently leaves out two facts. First, the rich are now paying a smaller percentage of their income in taxes than at any time in the last seventy-five years. That they pay a lot of taxes nonetheless is a by-product of the mind-boggling increase in their income and wealth relative to most other Americans. Second, if you consider not just income and capital-gains taxes but all the taxes people pay – including payroll taxes and sales taxes – you find that middle-income workers are now paying a larger share of their incomes than people at or near the top. We have turned the principle of a graduated, progressive tax on its head.