Landsburg is provocative and playful in his mission to demonstrate how an understanding of economics will change the way you live your daily life. I loved this book.
Supply-side economics developed in response to the stagflation of the s. Classical liberals opposed taxes because they opposed government, taxation being the latter's most obvious form. Their claim was that each man had a right to himself and his property and therefore taxation was immoral and of questionable legal grounding.
As in classical economicssupply-side economics proposed that production or supply is the key to economic prosperity and that consumption or demand is merely a secondary consequence. Early on, this idea had been summarized in Say's Law of economics, which states: John Maynard Keynesthe founder of Keynesianismsummarized Say's law as "supply creates its own demand".
He turned Say's law on its head in the s by declaring that demand creates its own supply. Wanniski advocated lower tax rates and a return to some kind of gold standardsimilar to the — Bretton Woods System that Nixon abandoned.
Laffer curve[ edit ] Three different Laffer curves: Supply-siders argued that in a high tax rate environment lowering tax rates would result in either increased revenues or smaller revenue losses than one would expect relying on only static estimates of the previous tax base. Jude Wanniski and many others advocate a zero capital gains rate.
Fiscal policy theory[ edit ] Historical data from to shows a slight positive correlation between higher top marginal tax rates and GDP growth rate red line  Supply-side economics holds that increased taxation steadily reduces economic activity within a nation and discourages investment.
Taxes act as a type of trade barrier or tariff that causes economic participants to revert to less efficient means of satisfying their needs. As such, higher taxation leads to lower levels of specialization and lower economic efficiency.
The idea is said to be illustrated by the Laffer curve. However, some economists dispute this assertion pointing to the fact that revenue as a percentage of GDP declined during Reagan's term in office. Total tax revenue from income tax receipts increased during Reagan's two terms, with the exception of — Bush 's Council of Economic Advisersoffered similarly sharp criticism of the school in the early editions of his introductory economics textbook.
Tax cuts rarely pay for themselves. My reading of the academic literature leads me to believe that about one-third of the cost of a typical tax cut is recouped with faster economic growth. President Reagan argued that because of the effect depicted in the Laffer curve, the government could maintain expenditures, cut tax rates, and balance the budget.
This was not the case. Government revenues fell sharply from levels that would have been realized without the tax cuts. Two of the nine models used in the study predicted a large improvement in the deficit over the next ten years resulting from tax cuts and the other seven models did not.
Income inequality in the United States Income inequality can be measured both pre- and after-tax. There is no consensus on the effects of income tax cuts on pre-tax income inequality, although one study indicated a strong correlation between how much top marginal tax rates were cut and greater pre-tax inequality across many countries.
Federal income taxes are progressive, meaning that higher income tax rates are levied on higher levels of income.
In other words, a paycheck will have withdrawal amounts for payroll taxes e. Social Security and Medicare along with withdrawals for federal income taxes; some of the latter may be refunded when the annual tax return is filed.
Their conclusion was that the proposal would both increase deficits dramatically and worsen after-tax income inequality.
The supply-side history of economics since the early s hinges on the following key turning points: With the reduction in rates in the twenties, higher-income taxpayers reduced their sheltering of income and the number of returns and share of income taxes paid by higher-income taxpayers rose".
The stated goals of the tax cuts were to raise personal incomes, increase consumption and increase capital investment. Reaganomics Ronald Reagan gives a televised address from the Oval Officeoutlining his plan for tax reductions in July In the United States, commentators frequently equate supply-side economics with Reaganomics.
The fiscal policies of Republican Ronald Reagan were largely based on supply-side economics.
Reagan made supply-side economics a household phrase and promised an across-the-board reduction in income tax rates and an even larger reduction in capital gains tax rates.
Critics claim that the tax cuts increased budget deficits while Reagan supporters credit them with helping the s economic expansion that eventually lowered the deficits and argued that the budget deficit would have decreased if not for massive increases in military spending.
Paul Krugman later summarized the situation: When Ronald Reagan was elected, the supply-siders got a chance to try out their ideas.Mardi Dungey Professor of Economics & Finance Tasmanian School of Business & Economics.
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