May 10, 2006

Voodoo Schmoodoo Redux: Supply-Side Econ Works Yet Again

Filed under: Economy,MSM Biz/Other Bias,Taxes & Government — Tom @ 3:33 pm

Those who don’t think cuts in the highest marginal income-tax rates and in investment-related taxes don’t pay (excuse the expression) dividends in the former of higher tax collections will be impervious to this news, as they have been for some 40-plus years.

For the rest of us, from a subscription-only Wall Street Journal editorial, here’s more confirmation (bolds are mine):


House and Senate GOP conferees finally agreed yesterday on extending the 15% tax rate on dividends and capital gains for two more years through 2010. This means you can expect lots of media and liberal rhetoric about “the deficit” and “the rich,” but the real news is how well these lower rates have been soaking the rich to fill government coffers.

….. These columns have been documenting this trend for the last couple of years, as well as the revenue tide flowing into state budget coffers. Overall state revenues climbed by 8% in 2004 and nearly 9% in 2005, according to the Census Bureau, and more and more states are piling up big surpluses. We’ve reported this news because politicians like to disguise these tax windfalls so they can spend it all with impunity and still plead poverty. Journalists contribute to this ruse by focusing their budget coverage on deficits, rather than on the spending and revenue trends that are the actual components of any budget.

The current revenue rush also refutes the prevailing Washington consensus that the federal deficit is the result of the Bush tax cuts. In fact, this revenue tsunami is the direct result of the expansion that took off in earnest at about the time the 2003 tax cuts passed. Lower tax rates have since had precisely the result that supporters predicted, though don’t look for that story on page one any time soon.

This explains why tax-cut opponents have tried to change the subject from the sluggish growth they first expected, to the “jobless recovery” that soon became the 4.7% unemployment rate recovery, to lagging wage growth that is also now increasing. The latest liberal themes are allegedly rising “inequality” and allegedly exorbitant executive compensation. These are subjects for other editorials, but their current political and media prominence means the critics are conceding that they can’t credibly call the tax cuts an economic failure. So they have to find other election-year talking points.

Every tax-receipt increase quoted above is well in excess of the roughly 4% rate of growth in the economy.

Supply-side econ works. Just don’t look for the WORMs (Worn-Out Reactionary Media, known to most as The Mainstream Media) to acknowledge it any time soon.


UPDATE: The investment-related cuts that have been in effect for three years have been extended another two years, to 2010. I’ll take it, but they should have been made permanent, so that specific action will be necessary in the future to raise taxes. As it stands, doing nothing by 2008, something Congress is very good at, might plant the seeds for a recession. That’s because if investors and companies lose confidence that the cuts will stay in place, they will reduce their capital-spending and investment plans, starting a reverse spiral.

UPDATE: This is a good time to hearken back to a great Don Luskin post from January showing that the Clinton 1993 tax increases DID NOT generate extra revenue to the Treasury — but that the 1997 cut in the capital gains rate did. In fact, that cut brought in so much revenue that it, along with the relative restraint on federal spending increases from 1995 until 1997, nearly brought the budget into balance.


Cross-posted at


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