The latest print version of U.S. News includes an article from Justin Ewers recounting Ronald Reagan?s economic policies.
Ewers highlights some valid achievements and criticisms (I?d link to the article, but it doesn?t appear to be posted yet), but he also includes the following assessment:
After taxes were cut, he predicted, economic activity would increase so much that tax revenues would go up, allowing the government to pay down the deficit ? a radical new theory known as supply-side economics.
Except that?s not the theory. What Ewers describes is actually a possible outcome of supply-side economics. That outcome depends on other factors, including a government that reins in spending.
The Concise Encyclopedia of Economics actually offers us a better definition, which reminds us of one of the social benefits of reducing marginal tax rates:
Since 1986, the top marginal personal income tax rate has been less than 40 percent, compared with 70 percent prior to 1981. Nonetheless, those with high incomes are now paying more. For example, more than 25 percent of the personal income tax has been collected from the top 0.5 percent of earners in recent years, up from less than 15 percent in the late 1970s. These findings confirm what the supply siders predicted: the lower rates, by increasing the tax base substantially in the upper tax brackets, would increase the share of taxes collected from these taxpayers.
That?s a fact the Obama administration ought to keep in mind as it considers changes designed to ?tax the rich.?
