Supply Side Thinking

I almost let this post sliped by: Megan drags out some important information about tax rates and tax revenue. Read the coments: there’s lots of good discussion about supply side economics.

No one owns the “official position” about supply side economics – there’s just a lot of opinions. The evidence on capital gains taxation is pretty clear (except to Senator Obama) – lower cap gains taxation encourages captial formation, economic growth, and jobs. Most of the supply side controversy concerns income taxes. It’s clear enough that lower income taxes also result in more capital formation, but also more consumption. The question is whether the economic benefits of lower income tax rates will “pay for themselves” in terms of future tax revenues. It seems to me that Laffer was correct: there’s a level at which taxation is “too high” and a rate at which it’s “too low”, if your goal is to maximize government revenue. But sheesh, why would we want to do that?


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