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