Posted by John Irons at August 26, 2002 04:58 PM

So, you thought supply-side economics was dead (or at least wounded)? Perhaps it's still kicking about. (See quote below).

Quick supply side primer:

1. (Weak version) If you decrease income taxes, you remove a disincentive to work, which may lead to an increase in output as people increase the quantity of labor they supply at a given pre-tax wage.

2. (Strong) The size of the effect from the Weak version above is so strong that the increase in the number of hours worked, increases in employment, output, etc, will actually lead to an increase in tax revenue. This, in principle, might happen because, even though tax rates are lower, the tax base might be so much larger so as to increase revenue.

When you think of Reaganomics, or Supply-side economics as cited in the press - think of the Strong version.

Most economists will agree with the weak version, or at least the notion that tax decreases by themselves would not decrease output.

Most economists will also disagree with the Strong version. All evidence points to the fact that the size of the tax effect simply is not strong enough to create a revenue increase.

Roughly speaking, the only people who still really believe in the strong version are in congress or the administration who like the idea of tax cuts without costs.

The New Republic Online: The Champion

Moments later, when asked how much the tax cut will contribute to the deficit in future years, he replied, "If it contributes to greater economic growth down the road, it'll be a positive factor. Now, I believe it will, and so does the president." So Daniels has embraced the hoary notion--repudiated even by radical supply-siders--that cutting taxes at current rates will increase tax revenues. Meanwhile, the official position of Daniels's own office is that the tax cut will contribute 40 percent to the deficit over the next decade.