When the “enlightened”
insist that “abstinence doesn’t work” in preventing teen
pregnancy, the clear-headed reply that it works every time
it’s tried.
It’s time the discussion
of supply-side economics took on the same character.
The economy hasn’t been
much in the news lately, but here’s a news flash: It’s
terrific. So terrific, in fact, that even the National
Association of Manufacturers is celebrating. Remember
American manufacturers? The people whose days were numbered
as jobs headed off to China, Mexico and India? They just
added jobs for the second consecutive month – the first time
that’s happened in over a year.
And there’s more. The
Gross Domestic Product has grown at least 3.3 percent for 10
consecutive quarters, including 4.3 percent in the most
recent quarter. The economy added 215,000 jobs overall in
November, bringing the net number of jobs added during the
Bush administration to 1.2 million. Since 2003, when one
could argue that Bush’s policies really came into full
force, we have added 4 million jobs. “Economic Contrarian”
Mike Norman estimates we have increased output by $3
trillion under Bush, and increased overall wealth by $8
trillion.
People are buying more
durable goods. Consumer confidence is up. The stock market
is nearing 11,000 for the first time since 2001.
Supply-side economics
has worked again. It always does.
It’s hard to remember
much about the Bush administration prior to 9/11, but in the
summer of 2001, the biggest substantive news story was
Bush’s tax cut proposal. Bush argued that cutting marginal
rates would spur private-sector investment and promote
economic growth. Democrats, in addition to their beloved
class-warfare rhetoric, responded with the usual talking
point that tax cuts would be irresponsible because they
would rob the federal treasury of needed revenue.
A decade earlier, they
had rolled Bush’s father with this argument, arm-twisting
him into raising taxes and then blaming him when the economy
went south. Fortunately, this Bush looks to a better
historical example of economic wisdom.
Cutting tax rates
reduces revenue, eh? As Bush knows, that’s not what happened
when Ronald Reagan cut taxes. Quite the opposite, in fact.
When Reagan took office – with the highest marginal tax rate
an astounding 70 percent – annual federal revenues were just
over $500 billion. After Reagan cut taxes across the board,
reducing the highest rate to 33 percent, federal revenues
boomed – nearly doubling in real-dollar terms by the end of
his presidency.
So Bush – seeking the
same results – pushed through his tax cut program in 2001,
then came back and cut taxes again in 2002 and 2003.
The logic of supply-side
economics is almost as unassailable as the reason abstinence
prevents pregnancy. Excessively high tax rates discourage
investment by removing wealth from the private sector,
slowing growth and reducing federal revenues. Lower tax
rates, by contrast, encourage investment, spur growth and
increase federal revenues.
Bush knew it worked in
the 1980s, and he knew it would work it again. The envelope?
Federal revenues last year were up 14.8 percent compared to
the previous year. This year, they are expected to increase
even more. That’s because there is more wealth to tax, so
even with lower rates, you collect more money.
The investment part came
true as well. The NAM reports that business spending on
equipment and software grew by a 10.8 percent annual rate in
the third quarter.
It worked again. Why
this should surprise anyone is the real mystery. Supply-side
is the most logical economic philosophy we have because it
recognizes that the effect of tax rates on the health of the
economy – just as any Main Street retailer recognizes you
don’t make more money by trying to charge $100 for a candy
bar.
Yes, we still have
problems. The budget is still in deficit, since spending is
also up, although the deficit as a percentage of the GDP is
a pittance compared to most of Europe. We still face high
fuel prices. And we face major auto plant closings, which
tend to get the headlines, but are really the result of
decades of overcapacity and legacy costs that have nothing
to do with the economic policies of Bush or any other
president.
There will always be
some problems in the economy. But the overall news is
astoundingly good, which you’d think would get people’s
attention. Supply-side economics works. Every time it’s
tried.