Supply-side broadside revisited

Few things make otherwise reasonable people more unreasonable than the subject of taxes.

Take supply-side economics. It holds that if you slash federal taxes deeply enough, the surge in economic activity will more than make up the revenue lost from the tax cuts. It’s a belief devoutly offered by conservatives as a kind of panacea for the ills of society. Any criticism of supply-side theory brings conservatives rushing to the barricades, as I discovered recently after suggesting that it really doesn’t work as advertised.

Actually, I described it as bunk – concocted to provide intellectual cover for the Republican Party’s payoffs to its wealthy individual and corporate backers. Supply-side economics, I implied, bears as much relevance to true economics as intelligent design does to true science.

I forgot to duck. “Socialist!” was about the mildest epithet overheated conservatives hurled at me.

So let me try again. In theory, supply-side “economics” sounds fine. As Timothy, a fervent supply-sider noted in an e-mail message, “supply side economics works. Reagan proved that by dramatically lowering taxes and yet doubling tax revenue.” Timothy is right – but only half right, and selectively at that.

What Timothy and most conservatives fail to mention is that Ronald Reagan also raised taxes three times. He did so after Sen. Bob Dole warned that spiraling federal deficits threatened to damage the economy. Even with the tax increases, however, the deficit doubled under Reagan. (Timothy didn’t mention that either.)

A corollary of supply-side economics is that high taxes can kill an economy and, if carried to confiscatory levels, that’s true. But not all taxes are bad, as the experience of the 1990s illustrates.

No decade in American history can match the 1990s for the wealth it produced for ordinary workers and the investor class alike. But it was two huge tax increases – first by the first President Bush and later by Bill Clinton – that defined the economic policy of the decade.

Bush’s tax increase drove conservatives bananas. He had dissed the supply-side god. Conservatives deserted him in droves and helped cost him re-election. Clinton’s tax increase produced a premature prediction from Dole that it would bring on another Depression. What it produced was not merely unprecedented prosperity but enough revenue to wipe out the GOP deficits and leave a $250 billion surplus for the current President Bush, a supply-sider who has blown it all.

My favorite e-mailer was Etty, a liberal apparently, who wrote approvingly of my take on supply-side economics and found it refreshing and unexpected from “a right-leaning journalist” (presumably meaning a dead-beat conservative) like me.

This liberal-conservative confusion is all my fault. I have indeed been critical of Bush, mostly on domestic and economic policy. But I believe he’s correct that, however we got into Iraq, we can’t afford to lose there lest we give momentum to a murderous Islamist radicalism that threatens the whole Middle East. Liberals lose it when they read that.

The truth is, I believe neither party any longer represents the interests and ideals of ordinary Americans. The political system, which requires raising millions of dollars for even minor campaigns, has driven both parties into the arms of special interests.

The Democratic Party is a subsidiary of the teachers and public employee unions, the trial lawyers, and the inbred liberal communities in Hollywood and academia. The Republicans of Bush and Karl Rove are even worse, beholden as they are to the mullahs of the Christian right who pose a threat to separation of church and state; to the National Rifle Association; and to a greed-driven corporate community devoid of loyalty to this country or its workers.

The question raised by readers like Timothy and Etty is whether supply-side theory could actually work. The answer is probably yes – but only if spending is slashed to the bone. But do we really want a government that shortchanges investment in modern roads and airports, a college-educated work force, research that produced space-age technology, the Internet and health care improvement – while caring for veterans, the poor and the underprivileged?

Justice Oliver Wendell Holmes provided the best answer in a 1904 tax case. “Taxes,” he wrote, “are what we pay for civilized society.”