AS one who was present at the creation of supply-side economics back in the 1970s, I think it is long past time that the phrase be put to rest. It did its job, creating a new consensus among economists on how to look at the national economy. But today it has become a frequently misleading and meaningless buzzword that gets in the way of good economic policy.
Today, supply-side economics has become associated with an obsession for cutting taxes under any and all circumstances. No longer do its advocates in Congress and elsewhere confine themselves to cutting marginal tax rates the tax on each additional dollar earned as the original supply-siders did. Rather, they support even the most gimmicky, economically dubious tax cuts with the same intensity.
The original supply-siders suggested that some tax cuts, under very special circumstances, might actually raise federal revenues. For example, cutting the capital gains tax rate might induce an unlocking effect that would cause more gains to be realized, thus causing more taxes to be paid on such gains even at a lower rate.
But today it is common to hear tax cutters claim, implausibly, that all tax cuts raise revenue. Last year, President Bush said, You cut taxes and the tax revenues increase. Senator John McCain told National Review magazine last month that tax cuts, starting with Kennedy, as we all know, increase revenues. Last week, Steve Forbes endorsed Rudolph Giuliani for the White House, saying, Hes seen the results of supply-side economics firsthand higher revenues from lower taxes.
