AMAC Exclusive by Herald Boas
Joe Biden’s Address to Congress last week provoked a strong backlash among Republicans who cried foul over his 6 trillion dollars in proposed new spending, supposedly to be financed by massive tax hikes on the wealthy. But though the leftist corporate media wants to make this look like a purely partisan spat, the truth is that behind the vigor of those GOP attacks is the conservatives’ “supply-side” philosophy–an approach with a long and distinguished history and an enviable record of economic success.
Understanding that philosophy means making two simple points that set the context. First, the study and practice of economics in a democratic capitalist society is not as exact and predictable a science as physics, chemistry, or biology–but in a given era, there are demonstrable outcomes to each kind of economic policy.
Second, assuming that the economic goal of a society is prosperity, growth, and stability for as many persons as possible, we can identify reliable and sound strategies for achieving these goals. There are also risky and counterproductive strategies that stand in their way and produce economic suffering and hardship.
President Biden’s speech, unfortunately, endorsed the latter–policies that likely risk cutting short the post-pandemic economic recovery now underway.
He has proposed, and his Democratic Party-controlled Congress could enact, a combination of raising marginal income tax rates for some individuals and corporations to pay for mammoth new federal government spending on projects, many of which do not produce real growth and new jobs. He does, however, please his core support groups (such as labor unions) with expensive benefits at taxpayers’ expense.
In the 1920s, Treasury Secretary Andrew Mellon persuaded two Republican presidents to reverse their party’s initial policy of high tax rates and heavy government spending (although marginal income tax rates and federal expenditures were then far less than they became later).
In the period from 1933-41, when the national (and much of the global) economy was in depression and great general distress, a certain amount of Keynesian progressive tax-and-spend policy was inevitable, but by the early 1960s, it was clear that “New Deal” economics was not working.
Two Nobel Prize winners in economics established the basis of what is now called “supply-side” economics, which effectively refuted the “demand” premise of New Deal interventionist economic strategies. These were Milton Friedman and his young colleague at the University of Chicago, Canadian-born Robert Mundell. A number of younger economists, including Art Laffer, Douglas Dillon, and Jude Wanninski (who popularized the term “supply-side economics”), expanded and espoused these strategies so that President John F. Kennedy adopted them successfully (enacted mostly just after his assassination).
Later, Presidents Lyndon Johnson, Richard Nixon, Gerald Ford, and Jimmy Carter reversed them, ushering in more than a decade of periodic recessions and economic instability.
Only in the early 1980s, at the prodding of Congressman Jack Kemp, as well as Newt Gingrich and other supply-siders, did President Ronald Reagan initiate lower marginal tax rates and then a reduction of federal spending — launching a decade of a prospering U.S. economy.
Only when President George H.W. Bush broke his pledge of “read my lips, no new taxes” in 1991 did the economy go into recession (and he lost the 1992 election). His successor Bill Clinton also faltered with “demand” economics higher tax policies until he reversed himself at the prodding of the supply-sider Speaker Newt Gingrich after Republicans won control of the U.S. House in 1994.
(Two excellent books detailing the economic policy of the Kennedy to Reagan era are JFK And The Reagan Revolution by Lawrence Kudlow and Adrian Domitrovic, and Jack Kemp: The Bleeding-Heart Conservative Who Changed America by Fred Barnes and Morton Kondracke.)
Liberals try to denigrate the supply-side strategy by labeling it “trickle-down” economics and by contending it doesn’t work, but the fact is that whenever it was properly applied (as by President Kennedy, President Reagan, and by Clinton-Gingrich), it did work.
The key element is providing taxpayers, entrepreneurs, and corporations incentives to work more, innovate and expand — which produces more jobs, new opportunities, and, of course, ultimately greater tax revenues over time without raising marginal tax rates. (Non-marginal tax benefits such as tax credits, stimulus payments, etc., are good but don’t provide incentives to do more work and innovate as lower tax rates do.)
The old neo-Marxist line portrays affluent Americans and businesses as not paying their “fair share” of taxes, but the fact is that they do pay the bulk of federal taxes while about 50% of lower-earning Americans pay no federal income taxes at all.
Supply-side economics works when marginal tax rates are low, non-productive federal spending is cut (thus reducing federal deficits and making the U.S. dollar strong domestically and internationally) — all of which promotes economic growth, more jobs, and general prosperity.
This week, President Biden proposed the opposite: disincentives to growth, much higher federal deficits, and thus a weak U.S. dollar (at a time when America is facing a stiff economic challenge from China). As statistician Jeffrey Anderson points out in the Washington Examiner, Biden’s infrastructure plan is projected to create relatively few jobs at a cost of $809,000 per job!
Biden’s proposals please the radical anti-capitalist elements in his party (led by Bernie Sanders and Elizabeth Warren) and might appear pleasing to others, but is the same old “malarkey” (to use a favorite Joe Biden word) that has failed the nation so often in the past, and turns its back, ironically, on Democratic Party icon — and supply-sider — John F. Kennedy.