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Another View: Supply-Side Economics | Batavick

Frank J. Batavick | Columnist


It is all well and good to spout challenging ideas and theories, but the true assessment comes where the rubber Images-2meets the road or, more precisely, when the merit of any idea gets tested in the forge of real life.

In 1974 economist Arthur Laffer met with Ford Administration staffers Dick Cheney and Donald Rumsfeld. Laffer supposedly sketched a curve on a napkin to explain an economic concept that would come to bear his name— the Laffer curve. His graph began at a 0% tax with “0” revenue, increased to the greatest amount of revenue at a tax rate that’s in-the-middle, and then dropped back again to “0” revenue at a 100% tax rate. He was making the point that raising taxes beyond a certain rate is counter-productive to increased tax revenue.

Before we consider the ultimate impact of this impromptu economics lesson, keep in mind that 29 years later Cheney and Rumsfeld were among the geniuses who gave us the Iraq War. It is also interesting to note that the Laffer curve is loosely adapted from the Muqaddimah, a 14th century scholarly text written by Ibn Khaldun, a Muslim historian. For Republicans, that falls into the category of irony writ large.

Inspired by Laffer’s curve and not troubling themselves to discover what that ideal tax rate might be, Republicans championed cutting taxes to spur the economy. Today they still believe that any tax increase would not only diminish tax revenue, but also rob dollars from the wealthy that they’d otherwise invest in business to help increase production and create jobs. Hence, higher taxes are regarded as “job killers.”

The party faithful and pundits applied labels to this strategy: Reaganomics, supply-side economics, and trickle-down economics. In other words, if you cut taxes on the wealthy, their additional dollars will eventually trickle down to enrich average citizens. In 1980, George H. W. Bush called the trickle-down theory as practiced by President Reagan “voodoo economic policy,” but let’s not get ahead of ourselves.

So what happens when you test this idea in the forge of real life? To illustrate, we have a tale of two states. In Kansas, Republican Governor Sam Brownback pushed through income tax cuts in 2012 and 2013 to stimulate the economy. He reduced the top tax bracket by 25% and eliminated all taxes on small businesses. Brownback claimed that these measures would be “like a shot of adrenaline into the heart of the Kansas economy” and create “tens of thousands of new jobs.”

The result? In the 2014 fiscal year Kansas reportedly took in $338 million less than expected. Furthermore, the state is bucking the national trend by actually losing jobs over the last six months. Predictably, Brownback responded to the shortfall by slashing funding for public schools and higher education by a whopping $44.5 million.

Just two states away we have Minnesota and its Democratic Governor Mark Dayton. When he took office in 2011 the state was burdened with a $6 billion dollar deficit and an unemployment rate of 7%. To combat this he raised the state income tax 2% to 9.85% on those earning over $150,000 and couples earning over $250,000 when filing jointly. This made Minnesota’s income tax rate the fourth highest in the country

The result? Minnesota now has a budget surplus of over $1.2 billion, an unemployment rate of 3.6%, and 172,000 new jobs. Dayton has succeeded by making the rich carry their fair share of the tax burden. And before anyone out there shouts class warfare, keep in mind that Dayton is the billionaire heir to the Target fortune.

So, what have Republicans learned from all of this? Not much. Their presidential candidates talk of big tax cuts, if elected.  They promise to be pro-growth by cutting “tax rates on income, business investment, capital gains, dividends and estates."  They admit it may “swell the deficit,” but plan to counter this by reducing entitlement spending. Prepare the backs of the poor.

Nobody likes taxes, but often by cutting them unnecessarily we strangle education and essential government services. Mindless tax-cutting isn’t the answer. But it can be Laffable.

Frank Batavick is a graduate of Gloucester Catholic (‘63) and La Salle University ('67) with over 40 years of experience as a television writer/producer/director for public TV and media companies in IN and NJ.  He has also served as adjunct faculty and visiting professor in Communications at colleges and universities in NY and MD. Frank now lives in MD with his wife Dori (GCHS, ‘63), where he is the vice chair of the Historical Society of Carroll County’s board of trustees, editor of the Carroll History Journal, and a weekly columnist and occasional feature writer for the Carroll County Times.