Letter: 'Supply Side' doesn't supply

In his letter Nov. 9, Alex D. Chapman Jr. recommended that we implore Grover Norquist to release Gov. Bobby Jindal from his pledge to not raise taxes. It’s not just our governor, nearly every Republican in the House of Representatives and most in the U.S. Senate have signed the same pledge to never raise taxes, no matter what.

This is not because they are mean-spirited. It is based on the theory of Supply Side Economics, which holds that higher tax rates will shrink the economy, while lower tax rates will leave more money in the hands of the more-effective private sector and thereby expand the economy so much that even with lower tax rates, the government will collect higher revenues.

It is a very appealing theory and sounds almost too good to be true. (George Bush I called it “Voodoo Economics.”) It was supposedly validated when President Ronald Reagan implemented a reduction in some tax rates in his first term and the economy significantly improved.

There are a lot of different things that are taxed and many taxes come with exemptions for special-interest groups. The best way to gauge what tax rates are is to compare the total revenues collected by the federal government to the size of the economy, the gross domestic product (GDP).

Those numbers are readily available (see http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=205). A chart on this website by the Office of Management and Budget shows the amount of tax revenues collected annually by the federal government, along with the GDP (all adjusted for inflation to 2005 dollars).

The GDP tax rate has averaged 18.1percent since 1940. In Ronald Reagan’s first term, it was 18.4 percent. In Bush II’s second term, the federal government collected $9.18 trillion in revenues from a combined GDP of $51.3 trillion at a 17.9 percebt tax rate. The combined GDP during Barack Obama’s first term is expected to be about the same as Bush II’s, however revenues have fallen $1.4 trillion to $7.9 trillion or to about 15.4 percent of the GDP.

Franklin Delano Roosevelt was president the last time an administration’s tax rate was lower than Obama’s. So let’s re-test the Supply Side Theory. With the effective tax rate being the lowest it’s been in seven decades, the economy must be skyrocketing, right? The only thing skyrocketing is the deficit.

Republicans say it’s not a revenue problem, only a spending problem. Had the tax rates been the same for Obama as they were for Reagan, the revenues would have been $1.5 trillion higher and if the same as Bill Clinton’s, nearly $2 trillion more.

I agree with Chapman, Republicans must break loose from Grover Norquist’s chains and do what must be done to stop this out of control debt: cut spending and raise taxes.

David Treppendahl

real estate investor

St. Francisville

Comments

1) Comment by InPVille - 21/11/2012

Of course, Mr. Treppendahl's discussion of the relationship of Federal Tax Revenues to GDP leaves out an important factor. It ignores the fact that for the last three decades there has been a steady increase in deficit spending. In 1981 the National Debt was 32.5% of GDP. As of 2011 the National Debt was 99.6% of GDP. So the actual government burden on GDP is larger than Mr. Treppendahl would have you believe. -[**]- After looking at the chart referenced by the writer, I can't see how he came to the conclusions he drew as to the rates during FDR's Administration and the current one. The chart lists receipts to GDP and not rates. Using the numbers given, the total revenue to GDP was less during the Truman Administration(1949-50) than the current administration. It doesn't work out for the Individual and Business taxes columns either. The numbers were lower in 2003. -[**]- I would be remiss were I not to point out that the Keynesian theories applied by President Bush when the economy took a downturn at the end of presidency and also during the current administration haven't worked either. The inescapable conclusion is that there is no economic theory currently able to dependably produce economic progress. The ups and downs of business cycles continue to exist no matter what government attempts in an attempt to control the economy.

2) Comment by Scrooge - 21/11/2012

The eyes glaze over and a mindless, Pavlovian, media inspired knee jerk response takes over. Charmingly primitive, like watching a monkey at play. Ok, lets blame Obama, so what? He's still president. The obstructionism, blame and excuses wasn't such a great strategy for the cons either. See, more than one can play this stupid game, it doesn't take or do much, which is the problem, an onanistic display of self gratification.

3) Comment by agagent - 21/11/2012

If you do not know the details you might believe the libs’ spin. The 2008 budget came from the Democrats in Congress but libs still say it is Bush’s deficits. When Bush left office the government was funded with continuing resolutions, leaving Obama and the Democrats to make most of the 2009 spending decisions. In 2009 Obama signed the $787B stimulus and the $410B omnibus bill. Obama also spent the unspent TARP funds or about $350 billion in 2009. Again libs call that Bush’s deficit even though Obama and the Democrats formulated and approved the 2009 budget and spent left over TARP funds which had been appropriated in 2008.

4) Comment by DMJ - 21/11/2012

"I just love the way that liberals have no problem telling the rest of us how we should live." Like how if you're gay, you can't get married? Or if you're a woman, what you have to do with your body? Hypocrite.

5) Comment by Scrooge - 21/11/2012

How to write a conservative bromidian attack without ever having stepped into a college English class: Start with "it is amazing to me" or "I just love the way". Be sure to include the code word lib for the ignorati so that they know Rush is on your playlist; use "liberal'" for the rest of clueless who are the source of all your problems. From that point, just invent any sort of banalities you wish, you have established your intellectual domain by the first sentence. Truth is relative, insults clumsily masquerading as facts are mandatory. Proceed from the belief that you are the most enlightened person on the planet, therefore everyone else is inferior and cannot understand that your arguments are drops of wisdom bestowed by a creator 6000 years ago and his modern mouthpieces of the ether and are therefore infallible. SInce your bromides cannot be fallible, any statistics which support your point can be invented, like "it is amazing to me that 90% of faux conservatives have intelligences which are at or below average and have a high school diploma as a terminal degree." There you have it, a successful bromide laced post. If you like I will write some better ones for you, I believe I covered the main points above but you might have an occasional original thought which could be better expressed by a ghost writer. Cheers.

6) Comment by Attila - 21/11/2012

I just love the way that liberals have no problem telling the rest of us how we should live. These people conviently forget that 49% of the country voted for the other guy. Liberals have never met a tax they did not like or a spending/social program that they endorse. You guys have no problem spending money as long as it is someone else's money.,

7) Comment by DMJ - 21/11/2012

Supply Side was originally sold as a way to raise MORE revenue for the federal government. We know now that this stated goal was false. The actual purpose of lower taxes is simply lower revenue, so the government can do less. "Starve the best" they call it. They should at least be honest about it.

8) Comment by Tea_Slayer - 21/11/2012

agagent, you shouldn’t play with numbers. You look like a fool every time. You listed federal revue thru 2007. Why did you stop there? Maybe because revenue dropped significantly? 2008 – $2.2T, 2009 $1.8T

9) Comment by agagent - 20/11/2012

Libs blame the last recession on Wall Street greed. Greed is easy to cure: don’t let Fannie and Freddie guarantee those risky mortgages and don’t bail out Wall Street when they go bust. Libs blame deregulation for the recession. If that is true then it was Congress failing to regulate banking and finance . . . the Republicans prior to 2007 and the Democrats for about a year before the start of the recession. Clinton signed the biggest deregulation law. If you blame using the force of government to increase home ownership, Bush did that. He continued the policies put in place by Carter and Clinton.

10) Comment by agagent - 20/11/2012

I know the libs won't believe it but here goes anyway: A recession was underway when Bush took office: On March, 2000 the market crashed, followed by the Dot-com bubble. The worst 1 day crash happened after the terrorist attacks on Sept. 11, 2001. Another market crash occurred in the second half of 2002. The Bush tax cuts were in 2001 and 2003. Due to the crashes and the initial effect of the tax cuts revenue declined from $2.0 trillion in 2001 to $1.9 trillion in 2002, and $1.8 trillion in 2003. The economy recovered and revenues jumped to: $2.2 trillion in 2005, $2.4 trillion in 2006, and $2.6 trillion in 2007.

11) Comment by Triple - 20/11/2012

Congratulations to all the port siders on your election victory. Was curious if any wish to make predictions on what the next 4 years will bring? Unemployment better or worse? National debt reduced? Federal revenue up or down? Poverty count down? Economic output increases? Peace in the Middle East? Green energy industries thriving and prosperous? My predictions: unemployment about the same or worse, national debt greater, Federal revenue down, poverty increases, economic output sluggish, Middle East in turmoil, green industries failing and get ready for double digit inflation. One thing I am sure of, if indicators remain weak, conservatives will get the blame.

12) Comment by agagent - 20/11/2012

Obama said he would increase taxes on the rich because of his view of social justice.

13) Comment by agagent - 20/11/2012

Spending is the problem in Washington. Revenues have been increasing while spending has increased even more. The $3.6 trillion spent by the federal government in FY 2011 was a record, mostly because entitlement spending increased by about $900 billion over 4 years. The $3.8 trillion spent in FY 2012 was a record. Even when Washington talks of spending cuts they really mean a reduction in planned increases, not actual decreases in spending.

14) Comment by twinkie1cat - 20/11/2012

When businesses work together to hold prices at a certain level and control the market I think that is called an illegal monopoly. I think that applies to the GOP. Their prime directive was promoted as a pledge to not raise taxes, but it was really a well developed plan to unseat President Obama. Logic and reason and even success did not change their directive. They demonstrated their lack of concern for the people of America and their greediness. They lost the presidency. Hopefully they will lose the Supreme Court soon. All but one of the necessary states voted for Obama while the South sat there looking stupid. Fortunately, as much as I hate that we were ignored during the campaign, the good guys won anyway. It was a rout! Now we can get rid of these Republican governors, send Jindal into a private industry job, and Louisiana can begin its recovery from being a state of single issue voters and religious bigots.

15) Comment by Old Man Kensey - 20/11/2012

AgAgent never makes sense and his comments are always ludicrous. If there was ever an example of the Republicans living in a bubble- he wins the award. Either ignore him or make fun of him, but ive given up all hope he will ever have a real conversation. Or, for that matter, actually use real facts in his rants.

16) Comment by tradewinns - 20/11/2012

don't worry about politicians signing the no tax increase pledge. politicians have a way of "evolving" when it fits their agenda. if they feel raising taxes will assist in re-electing them they will be re-born.

17) Comment by Tea_Slayer - 20/11/2012

agagent's fantasy world is expanding "Revenues increased after the Bush tax cuts and that got us out of a recession" /// "A review of data from the White House Office of Management and Budget shows that tax revenues did not consistently increase after the Bush tax cuts went into effect. In FY 2001, tax revenue in dollars was $1,991.1 billion. For FY 2002 - the first budget of the Bush administration, which went into effect after President George W. Bush signed tax cuts into law in June 2001 - revenue dropped to $1,853.1 billion. Bush signed two more tax cuts into law over the next two years. In FY 2003, revenue dropped further, to $1,782.3 billion - about a 10-percent reduction from two years earlier. This drop in tax revenue occurred even as economic activity - the nation's GDP - was continually rising, according to Bureau of Economic Analysis data. Revenues then increased for four years - from $1,880.1 billion in FY 2004 to $2,568 billion in FY 2007 - before sliding to $2,524 billion in FY 2008, and then dropping further to $2,105 billion in FY 2009 as the recession exploded." --- http://www.cbsnews.com/8301-3460_162-20078242.html

18) Comment by chem - 20/11/2012

It is not ludicrous to blame current deficits on Bush-era tax cuts. Not only were taxes cut, but spending increased dramatically. It increased across the board plus we were pushed into two wars which over a decade has cost several trillion. Fiscal conservatism is a myth. The Republicans spent more during the Bush years than any other administration, including the current one.

19) Comment by 8point6 - 20/11/2012

More, now than ever, we need the new contract with America proposed by Gingrich.

20) Comment by agagent - 20/11/2012

Blaming current deficits on tax cuts in 2001 and 2003 is ludicrous. Even Clinton cut capitol gains taxes and the economy was spurred. Let’s blame today’s deficits on Clinton’s tax cuts. Revenues increased after the Bush tax cuts and that got us out of a recession.

21) Comment by agagent - 20/11/2012

We did not have Social Security, Medicare, or Obamacare taxes when FDR took office, so just comparing income tax rates is a false comparison . . . Basically Treppendahl lied.

22) Comment by agagent - 20/11/2012

The federal government spent a record $3.8 trillion last FY and for the fourth year the deficit was over $1 trillion. Federal revenue increased by 6% last year but the spending increases have been more than revenue increases. Increased entitlement spending was the main driver of Obama’s annual deficits. Now he wants to increase taxes to pay for his spending spurge.

23) Comment by Bighug - 20/11/2012

Cut spending and raise taxes to get out of debt! What a novel idea. Now if we could only elect some leaders for our country who cared more for the country than for their political party and personal gain, maybe we could save the US.