Let me continue where gonegolfin left off if I may.
First, I am a big fan of lower taxes. If it were up to me, there would be no income taxes, no death tax, and no property taxes. And above all, no capital gains tax.
Second, the supply-siders do have some good things to say. Tax cuts can definitely cause revenues to go up. If we raise taxes to 99%, what would happen to revenues collected? They'd drop to practically zero, that's what. Even the most diehard leftie socialist has to admit this. The only debate is, exactly what tax percentage does the peak of the Laffer curve lie on?
Supply-side guru
Jude Waninski belived that it was somewhere around 15%. It's important to keep in mind that you have to consider tax loopholes here to, which makes comparisons between two countries tricky. In his book
The Way The World Works (awesome book, everyone should read it), one of the examples he gave was postwar Japan. Lefties will sometimes point out the higher tax rates of a country like Japan, but they overlook the gigantic loopholes.
Another important point he makes: not all tax cuts will have the same supply-side revenue-enhancing effect. The most potent tax cut for enhancing revenue is the capital gains tax. He believes the correct rate should be zero. It impedes capital formation and discourages new investment.
But what do we say when one tax goes down, while another goes up? This happened during the Reagan years. Income taxes went down, but SS payroll taxes went up. So which was responsible for the increased revenue stream? It's kind of hard to say.
And finally, here's something else to consider. Low taxes are good because it leaves more resources in the private sector instead of in the hands of government. But what if government is increasing it's share of the GDP while taxes are cut? Where is government getting the increased money from? It might be from lower taxes, that's true. Or, it might be that they cut income taxes, but raised hidden taxes. It's hard to say. The hidden "stealth" tax I'm thinking of is either borrowing or inflation.
You will hear some supposed supply-siders claim that borrowing isn't that big of a deal, because we're deferring the taxes into the future, when we will have a bigger economy. This is misleading. When the government borrows money to pay the bills here and now, they aren't stepping into a time machine to travel into the future and take money from our wealthy descendants. They are soaking up dollars here and now, crowding out money that could have been channeled into private investments. This causes economic pain just like taxes, only it's more hidden. Then of course, future generations have to feel economic pain as they pay back the debt (if we could eliminate just the payments on the national debt, we could eliminate the income tax).
The other thing they do is print money, the stealth tax of inflation. They don't directly print it and spend it; that would be too obvious and people would be outraged. No, it's a convoluted process designed to induce MEGO syndrome amongst the voters (Makes my Eyes Glaze Over). As John Kenneth Galbraith said, “The study of money, above all other fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it.” (Money: Whence it came, where it went - 1975, p15) The bottom line is, without the power to create cheap credit (money) out of thin air, heavy government borrowing would suck up enough money to make interest rates go up. People would really take notice then, and raise hell.
Then there's the issue of fraudulent government statistics. Gross national product and consumer price index numbers are notoriously bad. Don't take this as a jab against republicans; it's been a bipartisan effort. I'll post some sources in a minute.
