I'm diving into Jonathan Chait's piece in The New Republic on how a whole huge conspiracy of crazy supply-siders has taken over the Republican party. This is, to put it kindly, wildly overblown. I mean, I'm all for someone taking on the sillier kind of supply siders who fanny about claiming that tax cuts increase tax revenue, but they've been rather thin on the ground lately. Most tax cutters today want tax cuts because they think they are good for the economy, not because they think that it will increase tax revenue. And contrary to Chait's assertions, these are not wild, insane things to think.
Chait tars all tax-cutters with the ideas of the looniest supply siders. One can believe that tax cuts, by reducing deadweight loss and/or providing fiscal stimulus, will be good for the economy, without necessarily believing that the economy will be crippled by a 5% rate increase.
His primary exhibits for the nefarious influence of supply-side policy are: Larry Lindsay, Dick Cheney, Jack Kemp, Jude Wanniski, and George Gilder. Cheney I give you, but Larry Lindsay was drummed out of the administration in disgrace (for unrelated reasons) even before Bush's major tax cut, and Chait somehow neglects to mention the more conventional economists who have occupied the job since. Jack Kemp hasn't had access to serious power since I was snoring my way through Algebra I, and what power he did have was over HUD. Moreover, though I agree that Jude Wanniski and George Gilder are barking moonbats, they have, to put it kindly, limited influence on today's Republican party; which is hardly surprising given that Wanniski was kicked out of the party in disgrace before he died in 2005, and George Gilder has turned his attentions to that hugely influention Republican mouthpiece, the Gilder Technology report. This motley collection of names is hardly proof that the Supply Siders Have Taken Over the Building.
Chait also elides the difference between statutory and effective marginal rates in "proving" that the latter group is wrong: after all, if high marginal rates are so bad for the economy, how come we grew so fast in the fifties, when the top marginal rate was 91%? The answer is that there was a pretty big difference between effective and actual tax rates, thanks to various generous deductions that were largely done away with by the middle of the Reagan administration.
Chait then claims this as evidence for the notion that "whatever negative effect such high tax rates have, it's relatively minor. Which necessarily means that whatever effects today's tax rates have, they're even more minor." For the record, I don't think that increasing the marginal tax rate on the rich (or almost anyone else) will have much effect on the economy. But Chait's breezy assertions are not good evidence for my belief. Perhaps growth in the 1950's could have been even more fabulous absent the high tax rates. Also, our tax code, and our economy, is substantially different in structure from the tax code of the 1950's, so extrapolating from then to now is very, very silly. Again, it might be that the changes would make the effects of rate cuts even more minor--but in fact I doubt it; the tax base is much broader now, and labor and capital mobility much higher, which should greatly magnify the effects of a change in rates.