Supply Side Economics, The Bush Tax Cuts & John Boehner Completely Discredited

• The core claim of supply-siders is that tax cuts spur investment, so we'll look at growth in private investment;
• Supply-side theory also claims that tax cuts increase government revenue, so we'll look at whether that actually occurred;
• And since growth in gross domestic product is the ultimate aim of any economic policy, we'll include that in the analysis as well.

(Note: All data below have been adjusted to account for inflation.)

Private investment:

After the '81 Reagan tax cuts, private nonresidential investment over the next seven years grew at an annual rate of 2.8 percent. After the '93 Clinton tax hike, private investment over the next seven years grew annually at 10.2 percent. After the 2001 Bush tax cut, private investment grew annually at 2.7 percent. (Data source: CAP/EPI study, Sept. 2008,, based on Bureau of Economic Analysis data.)

Federal revenue:

From 1981-1993, federal revenue increased by 20.7 percent over 12 years. From 1993-2001, federal revenue grew by 46.6 percent over 8 years. From 2001-2009, federal revenue decreased by 13.9 percent. (Even if you don't include the deep recession year of 2009 -- you might say we're invoking the mercy rule -- revenue increased just 3.3 percent over the eight years of Bush's presidency. (Source: OMB Historical Table 1.2)

GDP growth

From 1981-1993, real GDP grew by an annual average of 2.97 percent. From 1993-2001, real GDP grew by an annual average of 3.56 percent. From 2001-2009, real GDP grew by an annual average of 1.56 percent. (Source: U.S. Bureau of Economic Analysis)

In conclusion , in all three categories central to the claim of supply-side proponents, the economy performed significantly better in the wake of tax increases than it did in the wake of major tax cuts.

Also see In Addition to Geithner, Republican Economists Also Argue That Tax Cuts Do Not Pay for Themselves, Center for Economic and Policy Research, August 5, 2010, no author, in which both Timothy Geithner and Douglas Holtz-Eakin, "a prominent Republican economist who was the chief economic advisor to John McCain in his presidential campaign," dismissed the contentions that tax cuts pay for themselves as "myths."

Come on people. We are not fools. Looking at Jay Bookman's analysis, which seems pretty formidable to me, as it would to any logical thinker, and giving credence to Timothy Geithner as well as the PolitiFact analysis, I believe supply side economics, the damned Laffer curve, and the Bush tax cuts should be pretty thoroughly discredited. And the American people think so too! According to a recent look at Americans attitudes on taxes, Americans Believe in Tax Equity, Center for American Progress, April 15, 2011, by James Hairston, we overwhelmingly want progressive tax rates and dislike the Bush tax cuts:

• More than four-fifths of Americans favor a surtax on federal income taxes for people earning more than $1 million a year, according to a recent NBC News/Wall Street Journal poll.
• Almost 7 out of 10 Americans favor eliminating the Bush tax cuts for households earning $250,000 a year or more.
• (Also): The least popular deficit-reduction proposal is turning Medicare into a voucher program where seniors get government coupons for private insurance, as House Republicans have proposed.

Here it is worthwhile to note that Representative Ryan's budget plan to gut and privatize Medicare, according to the New York Times (CEPR article), "would add $30 trillion to the cost of buying Medicare equivalent plans over Medicare's 75-year planning horizon."

This is not the sum transferred from the government to beneficiaries. It is the increase in total costs -- waste to the government, income to insurers and health care providers. This $30 trillion figure is approximately 6 times the size of the projected Social Security shortfall. It comes to almost $100,000 for every man, woman, and child in the country.

Well, Boehner and the Republicans have had their way, and by way of budget blackmail, the Bush tax cuts have been extended for two years.

These tax deals have been going on for some time, either with Obama's complicity or out of political necessity. See the Guardian.co.uk, in an article by Dean Baker of CEPR, about tax cuts for the rich passed at the end of 2010. On this also see Tax Cut Deal: Extends Current Programs, Provides Little Spur to Further Job Growth, CEPR, December 7, 2010, by Eileen Applebaum, an article originally published in The Hill. Again, this was an earlier giveaway that Republicans forced Obama to make to the rich.

Now we have at least two more years of the Bush tax cuts, thanks to Boehner's and the Republicans' blackmail, and the political necessity of accepting a deal to get a budget which Obama faced. At this point, there are a few things we should know about these tax cuts. They won't stimulate investment. And there is no evidence they will create much job growth or overall economic growth in the economy. At least if history means anything. All it will do is line the pockets of the Republicans' real base, and their real masters, the rich and very rich.