When former President George W. Bush cut taxes, including his 2003 reduction in tax rates on investment, he always referred to it as putting more money in people’s pockets. I don’t want to be unfair, because the 2003 tax cuts were his best policy move. But Bush was never a supply-sider. Putting more money in people’s pockets is a demand-side argument.
Contrast that with Mitt Romney’s tax-policy speech today at the Detroit Economic Club, where he touted his new across-the board 20 percent reduction in personal tax rates. The language is crucial: “By reducing the tax on the next dollar of income earned by all taxpayers, we will encourage hard work, risk-taking, and productivity by allowing Americans to keep more of what they earn.”
This is supply-side language. It is incentive language.
Many of us have been asking whether Romney understands the incentive model of growth. Namely, keeping more of what you earn, invest, or risk provides a bigger reward. And those rewards translate into a fresh tonic for economic growth.
Ronald Reagan understood this when he famously told people that he quit working as an actor because he only made about 10 cents on the extra dollar earned from the extra movie. Mitt Romney seems to understand this incentive model.
His tax-cut plan is not perfect. Instead of retaining all six brackets of the personal income tax, I wish there were only two brackets or maybe three for a modified flat tax. But it’s clear that Romney understands the incentive value of his 20 percent marginal rate cut. He is satisfactorily answering the question that I and others have posed about his understanding of the supply model.
Reward more and you’ll get more. It’s not just a one-time benefit of more cash. New tax incentives at the margin change economic behavior for the better.
I will have more to say on the Romney plan overall, and about how it contrasts hugely with Obama’s massive tax-rate hikes. But for now I am satisfied that Mitt gets the supply-side approach.
I just find this language amusing. Larry Kudlow definitely is very confident. He "just" wants to make sure that Mitt Romney, a Harvard Business School graduate who worked at a private equity firm, "understands" supply-side economics.
I know Larry Kudlow is a very smart guy. And I like his optimistic personality. But really, sometimes he is just a "little" over the top, as this post nicely illustrates.
Reply to this commentLinkReport AbuseI see David is still trying to push the line that going to an Ivy League school proves that you are smarter than everyone else.
Reply to this commentLinkReport AbuseNo. It only means that you are smarter than MarkW, who never learned how to make an argument that did not rely primarily on ad hominen attacks.
Growling incoherently is not a substitute for actual thought, Mark.
:)
Reply to this commentLinkReport AbuseSpeaking of relying on ad hominens, I'm guessing David didn't actually bother to read what he just wrote.
Or anything else he has ever written for that matter.
Irony is lost on liberals. Then to, so is reality.
Reply to this commentLinkReport AbuseI'm finding both of you rather tiresome.
Reply to this commentLinkReport AbuseYou're a thousand percent right on that one. He likes to run off at the mouth and say stupid things, but can't ever back them up, and turns to empty assertions and insults when challenged to do so.
Reply to this commentLinkReport AbuseYou have to remember, that liberals are intellectually incapable of seeing facts that don't fit into their ideology.
Reply to this commentLinkReport AbuseI have presented facts, I do so most of the time. It's just that I don't present "their" facts, so that doesn't count.
Yeah, Mitt gets it. Pander politics directed at the culture of Obama journalists. 20% cut, but eliminate the deductions for the 1% so there is an effective nullification of the tax cut, just to make it fair.
Barf.
Reply to this commentLinkReport AbuseAs someone who worked alongside Jack Kemp and Steve Forbes, I respectfully disagree...
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Reply to this commentLinkReport AbuseLarry, I love ya but, as the previous comments point out, coming out with a supply-side plan now doesn't really prove that he gets "it". The economics of incentives, I mean. What it proves is that his first, ridiculous plan, didn't set the world on fire and he thinks he needs to appear more conservative to get the nomination. If this was his original plan then I might agree with you. Not now when he seems to be trying to find anything he can to get the Right on his side.
Reply to this commentLinkReport AbuseKudlow's lavish claims aside, the Romney/Glenn Hubbart plan is NOT supply-side. The plan is, at best, demand side.
The plan keeps effective tax rates for investment grade taxpayers the same by design. The plan does not lower capital gains taxes. The plain keeps the same effective rate of taxation on "the rich", and also threatens sacrosanct deductions even of the "middle class".
Taking a hard look at the plan itself, I am not left wondering if Romney understands supply side economics, I wonder if Kudlow understands it.
Reply to this commentLinkReport AbuseWhether the language is right is hardly the issue! We've now had almost 10 uninterrupted years of the Bush tax cuts -- the incentives Kudlow refers to -- presumably creating the risk-taking and productivity Kudlow promises.
Those 10 years provide all the empirical evidence we need regarding the efficacy of tax cuts.
Reply to this commentLinkReport AbuseAnd the evidence is in. Tax cuts work. However tax policy is not the only thing that affects the economy.
Reply to this commentLinkReport AbuseRegulations are just as big. There is also a big world that acts on it's own agenda.
I'd be very happy to see the top rate come down from 35% to 28%. But it's nowhere near as big a supply-side cut as Reagan. When he turned down movies because his marginal rate was 90%, and he would only get to keep 10%, that was a real disincentive. A cut to an 80% tax rate would have doubled his income. Cutting 35% to 25% means you get to keep 72% of marginal earnings instead of 65%. Not chopped liver, but not enough to ignite a Reaganesque boom. My guess is if Reagan was alive today he'd be focused on spending as the problem.
Reply to this commentLinkReport Abusecutting spending is the big monkey on our federal back that Romney really wants to cut. He's made it very clear that he won't just accept what's in the budgets but go after everything in them.
Reply to this commentLinkReport AbuseMinor correction, the Federal rate was 90%. The CA rate at the same time was either 12 or 15%.
It's not just the absolute tax rate that matters. You also have to compare our top rates to the top rates of other countries. Businesses, and people, move their income to the country that lets them keep the most of it. 10 years ago, the US was in the middle of the pack when it came to tax rates, at present we have one of the highest rates.
Reply to this commentLinkReport AbuseRomney supporter here.
Reply to this commentLinkReport AbuseFor some time, I've thought that we need to go back to the tax rates that we had at the end of Clinton's time - that we can't cut enough to balance the budget any other way. If we can get the spending down, then I support Romney's cuts.
But, I have begun to believe that - if we cut the corporate rate, some of what we are manufacturing for ourselves overseas will come home - we won't have as many people in the factories as we did when it left - but, because of the automation, we can manufacture it efficiently at home now.
Mostly, I like the 0 cap gains, interest, and dividend tax for those making less than $200K. The government only makes pennies off taxing investment income for these guys and it disincentivizes building a nest egg. Fortunately, this break won't apply to me, but I see it applying to so many friends and relatives, particularly seniors, that I want to stand up and cheer.
Surprise, surprise, surprise, a Romney supporter thinks raising taxes on the rich so that we can use it to buy votes is a good idea.
Reply to this commentLinkReport AbuseRe-Mark W
"I see David is still trying to push the the line that going to an Ivy League school proves that you are smarter than anyone else."
No. The line being pushed is that the distinction of being valedictorian of his class at Brigham Young University, where he graduated summa c*m laude with a B.A. in English--ditto Harvard Law and Business Schools graduating c*m laude from Law School and a Baker Scholar in business with a joint J.D. and M.B.A. translates, in Romney's case, a solid record of "turning things around" in the private and public sectors--i.e., creating businesses/jobs, producing profits, and balancing budgets at Bain & Company, Bain Capital (65 billion in assets), the Olympics--and as governor Blue State Massachusetts where he left office with a balanced budget, 3 billion rainy day fund, over 800 vetoes targeting his far left legislature, and 4.7% unemployment under his belt in just 4 years.
Yes, that does make Romney A LOT smarter than D.C. influence peddlers for cash Santorum & Gingrich, trainwreaks ejected from office--or even a Mark W.
Oh, the sheer misery "Anybody But RomneyBot" misery of it. FORCED to settle for a bonifide All-American success story with a well respected record to prove it, rather than Beltway eatablishment hacks Santorum & Gingrich, deficit experience in the private or public sectors, with a lifetime of promoting their expansion of Statist Gov't agendas at the federal level on the bankrupt taxpayer's dime. Unfortunately, perpetual catnip for the loser GOP & their Talking Heads, and is the reason 20% of the population (the Obama 20%) own this country lock, stock, and barrel.
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