Proof that supply side-economics does not work

| 06 Aug 2023 | 08:33

    Regarding the letter “Tax cut is a way to stimulate economy,” published in the July 27-Aug. 2 issue, some inaccuracies need to be addressed.

    First, according to Moody’s analysis of the 2022 Consumer Price Index, the average U.S. household spent $433 per month more because of inflation, or $5,196 more per year. That’s a little more than half of the claim stating that the average household spent $10,000 more per year “due to inflation.”

    Second, if the poor have been destroyed by “demand-side economics,” the last 40 years of supply-side economics helped make them poorer. In those 40 years, the ratio of CEO salary to typical worker compensation grew to 399 to 1. In other words, the CEO made 399 times what the average worker in the same company earned. That’s up from 21 to 1 in 1965. Another way to look at this comes from the Economic Policy Institute. Since 1978, CEO pay has skyrocketed 1,460% after adjusting for inflation.

    Third, if there are 500 new regulations and 6,000 new rules in the past two years, that’s because of all the deregulatory orders issued during the Trump administration that needed to be reinstated to repair the damage done. For example, in 2020, as the Trump administration was ending, the Washington Post reports that in those four years, the former administration eliminated 125 environmental rules protecting our clean air, clean water and endangered species and those governing toxic chemicals.

    Finally, the writer claims that reducing taxes brings in more tax revenue from increased taxes through job participation. But the current administration has a truly historic low unemployment rate and is currently adding an average of 200,000 jobs per month.

    Reaganomics brought down the highest marginal tax rate from 70 percent to 50 percent. The capital gains tax fell from 28 percent to 20 percent. The Brookings Institution reports that the resulting federal spending cuts were supposed to avoid exploding the federal deficit. But the spending cuts never materialized.

    Reagan spent more money than all previous presidents, from George Washington to Jimmy Carter, combined. In the 40 years of supply-side economics, the big numbers flooded the money upward, and only the zeros “trickled down” to the middle class, the workers and the poor.

    As Reagan was committed to reducing the size and scope of government, federal spending rose from $321 billion to more than $1 trillion. During the 1980 campaign, he assailed Jimmy Carter’s $73.8 billion deficit, but the deficit reached $220.7 billion by 1986. Those billions planted the seeds of the current $31 trillion deficit, proving that supply side-economics does not work.

    Sander Zulauf


    Editor’s note: Zulauf is a professor emeritus at County College of Morris