Supply-side economics is one of the greatest theories ever devised. The government cuts taxes – encouraging an economic boom that greatly increases taxable income – and then turns around to collect even more money than if it had kept taxes at higher rates. It’s just like something out of Harry Potter. The president takes a hat, waves his wand, says “abra kadabra,” and out of thin air pops the white rabbit with fistfuls of cash. Meanwhile, the Treasury Department takes a lump of lead and turns it into bright, shiny gold. It’s magic, or alchemy or (as President George H. W. Bush called it) Voodoo. And here’s the kicker: Just like Harry Potter, supply-side economics is little more than beautiful fiction.
I did not come to this conclusion on my own, seeing as I am admittedly no expert in the economy, but with the help of famed lawyer, writer and actor Republican Ben Stein. In an article he wrote for the New York Times March 9, Stein shows cutting taxes only works when the government cuts spending. Otherwise, we run up deficits that devalue the dollar and increase the cost of imports, including oil. That’s not to say cutting taxes does nothing: It stimulates the economy and certainly makes the government more popular among taxpayers, but something else is needed to help the national debt: Ultimately, the government needs money.
Unfortunately, it’s going to take more than a few statistics and factual evidence for supply-side economics to die. It has taken on its own life since Ronald Reagan introduced the idea to the American public while he ran for president in 1980. I think it’s because, on paper, at least, supply-side economics is the most perfect theory ever devised. The government, the economy and the taxpayers all make out better than they would otherwise; everyone wins and there’s no downside. Why would anyone want to ruin such a wonderful theory over trivial facts? But here they are: The economy simply doesn’t grow fast enough for the government to collect enough taxes to offset what it would be losing in the tax cut. By the time the economy actually reaches those levels, years have passed and the government is in debt.
So that’s it. That’s the hidden compartment in the magic hat. The rabbit is real enough, but try as you might, you simply cannot make something out of nothing. Just like a magic trick, people would rather believe in the lie than be disappointed by the truth.
I don’t like giving up money to the government more than anyone else, so I understand why everyone wants supply-side economics to work. I want it to work too, but there are worse things than having to shell out an extra 5 percent a year. It’s not like most people dislike where the money goes – I think support for public schools and body armor for troops is fairly high – so I don’t see why tax increases have such a negative effect on public opinion. Even the tiny 1 percent sales tax increase here caused Gov. Martin O’Malley’s popularity to plummet. I know all people have their own ideas of where the budget should be cut in order to prevent high taxes and deficits, but the sad fact of the matter is we can’t come to a consensus. Maybe lower taxes would cause people to give their extra money to charities of their choosing, effectively cutting the government out of the process and allowing the American people to decide what causes are good and bad. I’ve heard this argument before and I guess it’s valid enough, but that doesn’t help us now, when the government is running massive deficits and needs money to pay off the many overseas collectors. Former President Clinton increased taxes in the early ’90s and the economy was still able to flourish, despite the predictions of so many of Clinton’s detractors. So why are we so averse to trying it again?
Supply-side economics is the classic example of having your cake and eating it too: Try as you might, it can’t be done. Somehow, over the last 28 years, voters have been deluded into believing the fantasy is fact, but magic shows are supposed to be for kids. It’s time for us to grow up.
John Raderman is a sophomore journalism major. He can be reached at raderman@umd.edu.
