The Supply Side Quiz

by Mark Anthony

"There is no relationship between the level of taxes a
nation pays and its economic performance."

- Laura Tyson,
President Clinton's chief economic advisor

"If ignorance paid dividends, most...could make a fortune
out of what they don't know about economics."
- Luther Hodges, Former Secretary of Commerce

Never underestimate the ability of liberals to rewrite history.

Decades of economic fact and statistical evidence prove that lower tax rates produce higher tax revenues. Taxes were lowered significantly in the 1920s, 1960s and 1980s. In each case, tax revenue increased dramatically and median family income rose sharply.

Now, during a period of unprecedented levels of taxation, panicked redistributionists have been reduced to shamelessly labeling tax relief as 'irresponsible' and desperately claiming that supply side economics is a gimmick.

How can one make a case using statistically accurate, empirical data with people who call a seven percent increase in Medicare spending a draconian cut, or with people to whom a four percent increase in the school lunch program invokes Dickensian fear-mongering?

Leading the neo-liberal, big government engine of job creation is Labor Secretary Robert Reich whose economic philosophy is profoundly simple: Employer bad. Worker good. Union, really good.

Rather than trotting out charts and graphs showing revenue increases and rising standards of living as a direct result of tax cuts, I have prepared a Supply-Side quiz that even Robert Reich can understand.

Question 1: Which is the larger number: A) $601 billion or B) $991 billion?

Question 2: If you are experiencing a budget 'deficit,' which revenue figure would you prefer to work with in order to balance your budget A) $601 billion or B) $991 billion?

Question 3: All other things being equal, family A's income has declined by $2,100 while family B's income has increased by $4,100. Which family's income performance is more desirable, family "A" or family "B?"

Question 4: An entrepreneur is: A) a greedy self-centered parasite on society or B) a person who puts his or her money at risk in order to form a new business or expand an existing business, thereby creating jobs and promoting economic growth?

If you answered "B" to all four questions, congratulations. You are a supply-sider!

In 1983, the first year of the Reagan tax cut, tax revenue was $601 billion. By 1989, the final fiscal year of the Reagan presidency, tax revenue increased to $991 billion. The lower tax rates allowed people to save and invest a larger portion of the fruits of their own labor. As a result, American entrepreneurs produced the greatest peacetime economy in our nation's history, and median family income rose by $4,100. However, since 1989, median family income has declined by $2,100.

Clearly, America was far better off during the Reagan years as the economy expanded and tax revenue increased. The lower tax rates of the 1980s produced dramatically higher tax revenue just as similar rate reductions produced increases in revenue in the 1920s and 1960s. But the larger question is this: if liberalism craves tax revenues to fund social engineering and wealth redistribution, then doesn't it seem logical that liberal politicians must advocate a course of action that would generate greater tax revenues?

The liberal's motivation to continually raise taxes has less to do with generating revenue than it does with creating dependence. Conversely, it is not tax reduction itself that liberals fear but rather the personal responsibility that a lower tax burden breeds.

A further comparison of the Reagan economy with the seven post-Reagan years reveals a difference in economic performance, income growth and prosperity so profound that one wonders if we are comparing economic data from two different countries.

Under Ronald Reagan, America enjoyed a ninety-two month economic expansion. Between 1982 and 1988 nearly twenty million new jobs were created; fifteen million of those new jobs came from new business startups as a result of the dramatic increase in capital made available by the capital gains tax cuts in 1978 and 1982. Every quintile of the population experienced real gains in personal income, the lowest twenty percent of income earners as well as the wealthiest twenty percent. The message of the 1980s was clear: we can create the greatest economy in American history by unleashing the entrepreneurial genius that built our nation.

The Bush-Clinton years taught America an equally compelling economic lesson: punishing the rich hurts everyone else a great deal more than it hurts the rich. When government raises taxation and regulation to punitive levels on entrepreneurial job creators, the pioneers of business and industry in effect 'take their ball and go home.' They largely take their money out of productive investments and put that money into tax-free municipal bonds and other legal ways to avoid the tax. The result is to punish capital formation. Fewer new businesses form and fewer existing businesses expand. High quality job creation is replaced by temporary 'on-time' staffing, with employers hiring employees to meet short-lived bursts of economic growth.

The post-Reagan years have simultaneously led to a wholesale reversal of the dramatic economic gains of the 1980s and bred a new wave of class warfare demagoguery.

The most compelling statistic of the post Reagan era is the makeup of the wealth distribution and income growth tables that liberals hold so dear. Since 1989, the only segment of the population that saw its income rise was the wealthiest five percent. Every other quintile of the population experienced dramatic reductions in income growth.

The last seven years have once again proven what free-market economists have known all along: government intervention in the market place most hurts the very people it is intended to help, the lower middle-class and the poor.

The opposite of supply-side economics has been tried before. A massive, retroactive tax increase in 1932 attempted to stimulate economic growth from the government down. That retroactive tax increase plunged our economy from a recession into a depression.

Clinton and Congressional Democrats made a similar mistake in 1993. Since that time corporate taxes have increased by 55% and personal taxes have risen by 25%. Clinton's $265 billion tax increase cost the economy $208 billion in lost output. It prevented the formation of 40,000 new businesses and over 200,000 jobs that would have been created by those new business startups. Between March of 1995 and March of 1996 alone, 325,000 high paying manufacturing jobs were eliminated. Most significantly, more Americans worked two or more jobs in 1995 than at any time in American history. Yet, with all those people working all those hours, personal income growth last year did not even keep up with inflation.

Overall, 1.2 million more private sector jobs would have been created during the Clinton administration had tax rates remained unchanged. However, the impact of private sector job loss has not been reflected in unemployment rates due to the fact that government employment has increased three times faster than private sector employment since 1989. There are now 19.3 million government workers versus 18.3 million manufacturing jobs. Clinton's claim of creating 10 million new jobs sounds impressive in its own right. But the fact remains that Clintonomics has produced the worst economic recovery since World War II and boasts less than half the number of jobs created during the Reagan recovery.

That economic growth is anemic and personal income is stagnant as a result of rising taxes during a weak economy is not surprising. That this administration has escaped any responsibility for its economic ignorance is shocking. Far too many Americans have fallen prey to the Clinton-Gephardt-Daschle-Dodd class warfare demagoguery, blaming job loss and stagnant wages on the "greed of big business" when we should be blaming it on the greed of big government.

The lesson learned from the last seven years is clear: Government cannot strip the wealth and rewards from the entrepreneurial job creators without stripping the private sector of its ability to create jobs in the first place.

The Clinton class-warfare machine sold its 1993 tax increase by claiming that 80% of the increased tax burden would come out of the bank accounts of the top 2% of wage earners - or "millionaires" in Clintonspeak. We soon came to find out that the Clinton Administration's definition of a millionaire is anyone who makes more than $200,000 per year. Clinton's marketing fudge was confirmed by the Democratic Study Group which found that 81.3% of the 1993 tax increase fell on this segment of the population.

But the Clinton spin-doctors conveniently left out two key points. That same 2% of wage earners are responsible for 22% of all economic activity. More importantly, these are not the wealthy that we are talking about; they are small business owners.

David Hale, chief economist of Kemper Financial Companies in Chicago, wrote, "If we add Subchapter S returns and sole proprietorships returns, about 89% of all tax returns with significant business income are subject to personal tax rates." Clearly, small business is the engine that drives the American economy, and it was these business owners and the people whom they employ who paid the bills and reaped the destruction of the Bush and Clinton tax increases.

Business owners, large and small, did not walk into their offices and factories one day in 1989 and decide en masse that they no longer needed a large chunk of their work force. Corporate downsizing and manufacturing layoffs came in response to dramatic tax increases and an expanding web of regulatory bureaucracies in order to quench big government's insatiable appetite for money and power.

After the Bush administration passed $150 billion in new taxes and created thousands of new regulations on business, American companies downsized out of necessity. They streamlined their operations and slashed their work forces in order to survive.

As a result, annual economic growth since 1989 has been a painfully sluggish 1.8%. During that time, three million jobs have been lost due to corporate layoffs accompanied by a net loss of 1.2 million manufacturing jobs. Fewer than one-third of those misplaced workers found new jobs that paid as well as their old ones. Consequently, median family income has still not caught up to its 1986 level, even though we have more two income families than ever before.

The Clinton tax increase alone cut the growth in real personal disposable income by $264 billion, equal to at least $2,600 less income for every household in America.

In his acceptance speech before the Democratic National Convention, Bill Clinton challenged American business owners to "create paychecks." Having never run a business or met a payroll, the president made his challenge without any clear understanding of exactly how and why paychecks are created.

As children, our parents told us "build a better mousetrap and the world will beat a path to your door." As a business people, we quickly learn the reality missing from that old adage: if you can't find the venture capital to build the factory, you can't manufacture the mousetrap - and you certainly can't hire the employees to run the factory.

In his 1996 State of The Union speech, President Clinton triumphantly claimed that the "era of big government is over, " only to promise during his re-election campaign a slew of new government programs, the majority of which will be financed by new and inventive taxes on entrepreneurial job creators.

Such is the dichotomy of the "compassion" president, feeling your pain while inflicting it. Although Tolstoy never met Bill Clinton, he certainly knew men of his nature when he cynically wrote, "I sit on a man's back, choking him and making him carry me, and yet assure myself and others that I am very sorry for him and wish to ease his lot by all means possible - except getting off his back."

Mark Anthony is a political analyst and the author of "Vanishing Republic, How Can We Save The American Dream?"

Copyright 1996, Mark Anthony Communications


Fem Force:Force-based institutions like capitalism or the male dominated family unit are used as the basis for a conservative reality that harms women and poor
Reagan Knight:Liberals attributing worst case scenario of capitalism as the definiiton of capitalism