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.
In other words, Romney's speech writers included language that Kudlow embraces in a recent speech. What's that story about 1,000 monkeys at 1,000 typewriters?
There comes a time in life when one realizes that when politicians are on the campaign trail, they say things that they think people want to hear in order to get their votes. Does anyone really believe that Newt wants to build a moon colony? He was just saying things that he thought his current audience wanted to hear. Most adults understand this.
Another point that can be made from this column (and from all of Kudlow's columns) is that Kudlow doesn't understand the budget. Tax cuts tax cuts tax cuts is all you ever hear. Maybe there's one phrase about spending cuts or entitlement reform, but nothing specific.
Reply to this commentLinkReport AbuseI just saw Rick Santorum's policy ethos. It is an impressive list.
There is enough meat on those bones to ignite winnable debates on a lot of economic (and social) fronts.
The left will think it to be a field day... But it is a truly and unrepentently conservative platform.
Reply to this commentLinkReport AbuseI typed ignite... upon further review, "incite" would have been a more honest verb.
The pesky economic numbers are failing the Democrats. England may truly be broke... and that might well put an end to any pretense of progress from the socialist left for a while. Thatcher's achievements aside, and the illusion of a conservative government at the moment, it's still one of their home fields. It will be a bitter pill to swallow - unlike Greece, there are still thunderous voices of reason to contend with on that gilded isle to squirrel their deal.
Reply to this commentLinkReport AbuseIt's OK to express the effects of a Supply Side strategy as putting money in people's pocket because that is precisely what it does. It is infuriating the the clueless, dishonest left characterizes supply side arguements as unworthly of discussion, despite the FACT that the Keynsian (Demand Side) model rests on the same argument that the Supply Side does; namely that by introducing money into the economy you create income which is thusly spent and respent by others (see money multiplier). The difference is that under a Supply Side approach, you are intorducing a dollar into the economy by reducing taxes while the Demand Side approach deficit spends money to have one person dig a hole and another to fill it. The superiority of the Supply Side approach is that only those enterprises which are profitable (and therefore paying taxes) benefit from the reductions. This encourages enterprises which are making a profit, which another way of saying they are successful. The approach is non-inflationary in this regard.
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