The Right Coast
June 13, 2005
Supply Side Economics
By Mike Rappaport
James Gwartney has an encyclopedia entry on Supply Side Economics at the Concise Encyclopedia of Economics provided by the Liberty Fund. The Encyclopedia is a quite useful resource. Here is an excerpt from the article, which suggests that the Reagan Tax cuts had significant supply side effects:
The critics of the eighties tax policy argue that the top rate reductions were a bonanza for the rich. The taxable income in the upper tax brackets did increase sharply during the eighties. But the taxes collected in these brackets also rose sharply. Measured in 1982-84 dollars, the income tax revenue collected from the top 10 percent of earners rose from $150.6 billion in 1981 to $199.8 billion in 1988, an increase of 32.7 percent. The percentage increases in the real tax revenue collected from the top 1 and top 5 percent of taxpayers were even larger. In contrast, the real tax liability of other taxpayers (the bottom 90 percent) declined from $161.8 billion to $149.1 billion, a reduction of 7.8 percent. These findings confirm what the supply-siders predicted: the lower rates, by increasing the tax base substantially in the upper tax brackets, caused high-income taxpayers to pay more taxes. In effect, the lower rates soaked the rich.