Back in 1980 George H. W. Bush famously described supply-side economics — the claim that cutting taxes on rich people will conjure up an economic miracle, so much so that revenues will actually rise — as “voodoo economic policy.” Yet it soon became the official doctrine of the Republican Party, and still is. That shows an impressive level of commitment. But what makes this commitment even more impressive is that it’s a doctrine that has been tested again and again — and has failed every time.
Yes, the U.S. economy rebounded quickly from the slump of 1979-82. But was that the result of the Reagan tax cuts, or was it, as most economists think, the result of interest rate cuts by the Federal Reserve? Bill Clinton provided a clear test, by raising taxes on the rich. Republicans predicted disaster, but instead the economy boomed, creating more jobs than under Reagan.
Then George W. Bush cut taxes again, with the usual suspects predicting a “Bush boom”; what we actually got was lackluster growth followed by a severe financial crisis. Barack Obama reversed many of the Bush tax cuts and added new taxes to pay for Obamacare — and oversaw a far better jobs record, at least in the private sector, than his predecessor.
So history offers not a shred of support for faith in the pro-growth effects of tax cuts.
