NYT's Louis Uchitelle's Snide Criticism of Supply-Side Tax Cuts

March 26th, 2008 1:18 PM

Supply-side tax-cutters are on the march again, warned Times economics reporter Louis Uchitelle on the front page of Wednesday's Business Day -- "A Political Comeback For Supply-Side Doctrine -- Debate on Tax Theory Now Focuses on the Wealthiest."

(The Times's international edition headline over Uchitelle's story had the slant of an opinion piece: "McCain sticks to supply-side economics despite evidence it doesn't work.")

Uchitelle's NYT piece began snidely:

When Ronald Reagan ran for president in 1980, he promised to cut taxes in what seemed, at the time, a magical way. Tax revenue would go up, not down, he said, as the economy boomed in response to lower rates.

Since then, supply-side economics, as it was called -- first with derision but then as a label embraced by its supporters -- has become a central tenet of Republican political and economic thinking. That's despite the fact that the big supply-side tax cuts of the 1980s and the 2000s did not work out as advertised, as even most supporters acknowledge.

Federal tax revenue did in fact increase during the Reagan years, as no less a liberal authority than Media Matters acknowledged:

According to the White House Office of Management and Budget (OMB), when adjusted for inflation to constant fiscal year 2000 dollars, receipts (revenues) grew only from $1.077 trillion to $1.236 trillion during Reagan's term in office.

Besides, as the Heritage Foundation defines it, supply-side theory assumes replenishment of some but not necessarily all lost revenues.

Uchitelle quoted a supporter of lower tax rates, making sure to label his group "conservative."

But advocates see broader economic benefits from lowering tax rates, which is one of the reasons the concept has reappeared as a point of contention in this year's election campaign, in an amended form.

"What really happens is that the economy grows more vigorously when you lower tax rates," said Kevin Hassett, an adviser to the presumptive Republican nominee, John McCain, and the director for economic policy studies at the conservative American Enterprise Institute. "It is beyond the reach of economic science to explain precisely why that happens, but it does."

Even with a growing economy, however, the promised boon in tax revenue never materialized. Arthur B. Laffer, the renowned proponent of supply-side economics, still holds that tax revenues "rise dramatically" when tax rates are cut.

In the 1980s, though, during the initial era of supply-side tax cuts, per capita revenue from personal income taxes, adjusted for inflation, rose an average of just 0.7 percent annually throughout the Reagan presidency, according to the White House Office of Management and Budget.

Strangely, the Times' international edition of Uchitelle's story gave a different figure: 0.5 percent.

But you can slice the numbers all sorts of ways. The House Joint Economic Committee collated an April 1996 report, also using OMB figures, showing "individual income tax revenues rose from $244 billion in 1980 to $446 billion in 1989." That's almost a doubling of revenues. Uchitelle, befitting his liberal bent, chose the least attractive way to present the numbers.