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Originally Posted by finnbow
Actually, supply-side theory says what you say up to a point (i.e., the point of Art Laffer's maximum tax revenue). However, it says exactly the opposite on the other side of this peak. The fundamental weakness of Laffer and supply-side theory ([other than the ridiculous notion that tax rates are the only meaningful variable in predicting economic activity) is that neither the X or Y axis has values assigned to it and, to the extent it actually models real economic behavior (it can't and it doesn't), you have no idea where our economy is on the X-axis (will a tax cut increase or decrease revenue?).
Republicans always assume that we are permanently on one side of the peak, where tax decreases will always increase revenue. The real-life experiences of Reaganomics, Dubya's tax cuts, and the states of Kansas & Oklahoma reveal the fallacy of this one-independent variable model, not to mention the fact that we have no idea where our economy falls on the curve, even if this over-simplified and discredited model were valid. On the only side of the Laffer curve that the GOP ascribes to (right of center), my assessment of supply-side is absolutely true (i.e., decreases in taxes will increase revenue and obviate the need to decrease spending due to this increased revenue).
If you had a shred of economic education or knowledge, you'd understand that a model that tries to model the behavior of an $18.5 trillion economy based upon only one variable is ridiculous on its face. Your model predicts that Chad, Djibouti, the Congo and Belize have more vibrant and successful economies than the UK, the Netherlands, Germany and Denmark. How's does that work out for you?
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Still showing a lack of understanding. You always know where you are on both the X and Y axis. In fact, the model inherently suggests that there is a point of diminishing returns when the theory is applied. It depends on what your objective is. If the objective is to maximize revenue, then you need to find the spot on the curve where revenue is maximized. This means that there is a tax rate that is too low to achieve revenue maximization - where decreasing taxes becomes counterproductive. It also means that there's a point where taxes are too high to achieve revenue maximization - where increasing taxes becomes counterproductive.
As stated, supply side doesn't look at the spending side of the equation. The focus is on increasing revenue, not in determining how that revenue is spent. The idea that supply side is blamed for not having enough money to spend - especially in an environment like Washington DC where there is no fiscal discipline and spending money is seen as a way to buy political power - is sophistry of the first order. Bitching the "real-life experiences of Reaganomics, Dubya's tax cuts, and the states of Kansas & Oklahoma reveal the fallacy of this one-independent variable model" is your way of capitalizing on that sophistry.
Bitching about the "one sided" nature of supply side is also BS. If that's true, then you'd also have to bitch about the Keynesian crowd believing that we must always spend, and the revenue side of the equation be damned. Pretty tough to find a Keynesian advocating for spending cuts in good economic times or bad economic times. They'll tell you that gov't spending in a recession/depression is stimulative. They'll also tell you that when the economy is doing well, we need to spend that "peace dividend", or invest in job training, infrastructure or other nebulous and dubious "priorities".
Bottom line is with any economic theory, there's a balance in application that needs to be observed. Our corporate tax rate was certainly in need to reduction due to the relatively high rates versus other countries.
Reduction of personal tax rates was also accompanied by changes to tax code that reduced deductions (i.e., interest deduct-ability of home equity loans, state taxes, etc.). Not exactly a 1:1, but not dramatic either (as some here have pointed out).
The short term spending bill bugs me, sure. But I don't think this administration is done yet reducing the size and cost of government. So, maybe this will turn out to be the more balanced approach. Time will tell.