Recognizing the abject failure of supply-side economics

[웃 910]

Supply-side’s abject failure

In a

, President Obama issued a damning critique of trickle down economics and a stark defense of social insurance and public investments funded by progressive taxation. The president’s speech in Osawatomie, Kan., addressed the challenges of rebuilding the middle class and tempering income inequality, making the case that doubling down on the supply-side experiment of the last decade will fail the needs of the vast majority.

The president aptly characterized conservative economic policy as a two-pronged approach of cutting regulations and cutting taxes for the wealthy. (Note conservatives’ glaring lack of enthusiasm for refundable tax cuts or even an across-the-board payroll tax cut – tax cuts that would be pretty broad-based.) This is, of course, exactly the economic nostrum being preached by the GOP presidential field and Republican leadership on Capitol Hill. See, for instance, how the tax plans of presidential candidateRick Perry or House Budget Committee Chairman Paul Ryan (R-Wisc.) belie any concern about income inequality, or how regulatory uncertainty is used as a phony explanation for the jobs crisis.

This supply-side snake oil is peddled on the premise that when the wealthy do well, income gains trickle down to the middle class and everyone benefits from a growing economy. But that hasn’t happened—real median income has sharply decoupled from productivity gains in recent decades (particularly since 2000) and income gains have been incredibly concentrated at the top of the earnings distribution. The president made the following salient point on the supply-side experiment:

“Now, it’s a simple theory… And that theory fits well on a bumper sticker. But here’s the problem:

It doesn’t work. It has never worked.

It didn’t work when it was tried in the decade before the Great Depression. It’s not what led to the incredible post-war booms of the ‘50s and ‘60s. And it didn’t work when we tried it during the last decade. I mean, understand, it’s not as if we haven’t tried this theory.” (Emphasis added.)

The record of the Bush-era tax cuts, also invoked by the president, indeed speaks volumes: “Remember in those years, in 2001 and 2003, Congress passed two of the most expensive tax cuts for the wealthy in history. And what did it get us? The slowest job growth in half a century.” That and the slowest economic growth, non-residential fixed investment growth, compensation growth, and wage and salary growth. Imagine if we had instead used the $2.6 trillion these tax cuts added to the public debt over 2001-2010 to undertake investments in areas like education, infrastructure, and scientific research—investments that would have produced much better job-growth and that have actually demonstrated high economic returns.

Since the 2001 and 2003 tax cuts didn’t generate much in the way of jobs or incomes, they failed (by miles – or should we say trillions of dollars) to fulfill the mendacious claim often made by conservatives that tax cuts pay for themselves. (Note that this assertion continues to surface despite being flatly rejected by the Bush administration’s own economists.)

Based on this abject policy failure and the clear dysfunction of a tax code that allows a quarter of millionaires to pay lower effective tax rates than middle class families, President Obama made the case for tax reform – including allowing the top individual income tax rate to revert from 35 percent to the 39.6 percent rate implemented by President Clinton (which would still be well below tax rates for most of the post-World War II era).

Since most Republicans will clearly scream about the onerousness of this proposal, it’s worth noting that the optimal taxation literature calls for a steeper schedule of marginal tax rates and a considerably higher top rate than 39.6 percent. In their recent paper on the case for progressive taxation, economists Peter Diamond and Emmanuel Saez peg the optimal top income tax rate at 73 percent, up from 42.5 percent today (taking into account Medicare payroll taxes and average state income and sales taxes). This would imply a top federal marginal income tax rate of 65.5 percent—more than 25 percentage points higher than that proposed by the president. The current top tax rate is “is optimal only if the marginal consumption of very high income earners is highly valued,” note Diamond and Saez.

Of course, the value that policymakers put on the happiness of the very rich is exactly what stands behind the failure to enact job creation measures that would be financed by a surtax on millionaires and the repeated collapse of long-term deficit reduction negotiations because of conservative intransigence over raising more revenue from upper-income households.

I applaud the president for making the case for the progressive alternative against regressive tax cuts as the lodestar of economic policy. America’s low- and moderate income families should, too. As a nation, we cannot afford to double down on the failed, plutocratic pipe dream that is trickle down economics. Another round of tax cuts for the highest-income households will not restore full employment but will exacerbate widening income inequality, blow a bigger hole in the budget deficit, and defund needed public investments and economic security programs. Any policymaker genuinely concerned with the fate of the middle class, inequality and immobility, or the budget deficit, should be focused on rolling back the last round of inequitable and ineffective tax cuts rather than digging us deeper and deeper into a new Gilded Age.

http://www.epi.org/blog/supply-side-abject-failure/

[Danno 1,228]

Obama-nomics= success.

[Obama 2012 1,714]

I'm starting to wonder if LI is Steven with an alt. account....

On the article, the problem isn't tax cuts, tax increases, etc.. and the Bush tax cuts didn't cost a damn thing... stop making ####### up.

The reality is, as long as congress refuses to pass a long-term budget/tax rate, then the market is going to continue to be unstable. It will go down and up until the market sees stability in Washington.

[Danno 1,228]

No on, Steve and L. I. are clearly 2 diff people. Infamous is a radical Atheist and Steve is a New-age Catholic.

[Leatherneck 693]

Well, when you can't possibly run for re-election on your failed and miserable record, create a straw man and phony class warfare.

Anything to keep the kool aid drinkers drinking and not focused on your record.

[웃 910]

Well, when you can't possibly run for re-election on your failed and miserable record, create a straw man and phony class warfare.

Anything to keep the kool aid drinkers drinking and not focused on your record.

Failed and miserable record? Can you elaborate?

We went from millions of jobs lost under Bush creating the worst economic conditions in a century to millions of jobs created under Obama.

Look at the red bars - the last year of Bush. Just a complete disaster! This economy hasn't seen a month of job losses since 2009! You can thank Keynesian economics for the recovery

Edited December 10, 2011 by Lord Infamous

[Danno 1,228]

Failed and miserable record? Can you elaborate?

We went from millions of jobs lost under Bush creating the worst economic conditions in a century to millions of jobs created under Obama.

Look at the red bars - the last year of Bush. Just a complete disaster! This economy hasn't seen a month of job losses since 2009! You can thank Keynesian economics for the recovery

The neat trick to posting these bar graphs is where you start the year from.

Post another one going back 20 years and lets see what it looks like.

[웃 910]

The neat trick to posting these bar graphs is where you start the year from.

Post another one going back 20 years and lets see what it looks like.

Why? You want to see the 20 million some jobs created by Clinton?

[Danno 1,228]

Why? You want to see the 20 million some jobs created by Clinton?

Are you saying we need Clinton?

Post the chart.

[웃 910]

Are you saying we need Clinton?

Post the chart.

Is there a point you want to make?