Tax Cuts Won’t Rebuild AmericaSupply-side economics is a spent force, and we are already in debt.
Robert W. Patterson, Nathan Hitchen
Sep 6, 2023
When Liz Truss became prime minister one year ago today, conservatives on both sides of the pond thought she might herald a new era of tax-cutting to unleash prosperity. Since the Tories’ landslide of 1979 presaged Ronald Reagan’s triumph in 1980, ushering in the Anglo-American era of free-market supply-side economics, American conservatives have looked to their British cousins as hopeful harbingers. But the would-be heiress to Lady Thatcher resigned in 49 days after her tax-cut plan triggered a gilt market crisis. While the Wall Street Journal rallied to her Reagan-Thatcher program in belief it could still work wonders 40 years later, might the Truss fiasco signal another kind of harbinger for this agenda: the end?
Before the era of globalized capital markets, production, and supply chains, scaling back high tax rates under both Presidents Kennedy and Reagan delivered sustained GDP growth. Back then, newly freed capital was invested productively at home in American companies and domestic industry. Neither president implemented his respective tax reductions in a vacuum, but as corollaries of their industrial policies, from JFK’s visionary moonshot to Reagan’s spending on the defense industrial base and U.S. semiconductor manufacturers.
Nor did these Cold War leaders cut taxes with the idea of exporting capital to outsourced industries, boosting foreign productivity and competitiveness; rather, they worked to champion U.S. industry and indigenized technology, the middle class, and American workers. Today’s supply-siders overlook the economic nuances of the time. As David Goldman has noted, the late Robert Mundell persuaded not only the Gipper but also JFK on the merits of trimming marginal rates. The supply-side godfather also insisted on tight money by Reagan’s time, following the pattern of the Federal Reserve under Kennedy 20 years earlier.
Despite being embraced as gospel by the GOP donor class, creatures of Wall Street, and their beneficiaries, both the supply-side construct and playbook are a spent force. The interlocking set of supposed “free market” policy prescriptions built around supply-side economics—free trade, outsourcing, open borders, a tax-favored financial sector, deregulated U.S.-domiciled multinationals, and a low-wage “gig” economy—has served the winners of globalization, corporate and financial interests, far more than America, her communities, families, and workers.
Which leads to fatal blind spots in the present. The donor class glitterati assume, for example, that the effects of Reagan slashing the top rate from 73 to 28 percent can be replicated at even lower rates, although cuts of that magnitude can only happen once. And, by downplaying the ravages of globalization, specifically the deindustrialization and financialization of America, influential supply-side voices such as the editors of the Wall Street Journal presume an economy that no longer exists.
No doubt about it, Reagan’s 1981 across-the-board rate reductions triggered a boom, and one that outlasted Kennedy’s. But the 40th president had to enact “revenue enhancers” in three successive years to dig out of the yawning budget hole he created. Not until his second term did the Great Communicator deliver his signature tax achievement, the Tax Reform Act (TRA) of 1986.
A supply-sider’s dream, the 1986 legislation capped the lowest possible tax rate at 28 percent in exchange for an expanded tax base by scaling back loopholes, deductions, and credits. But, overlooked by tax cutters today, Reagan effectively raised taxes on capital while lowering them on labor by subjecting both sources of income to the same rates. Under the new law, hedge-fund managers could not get away with paying lower tax rates than those paid by the machinists and welders employed by companies they bought and sold.
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Source:
https://www.theamericanconservative.com/tax-cuts-wont-rebuild-america/
