oor Jonathan Chait. As a fervent anti-supply sider who believes in the depths of his soul that taxes don't effect people's behavior, he now is assigned a near impossible task. He has to explain how the near 30 percent reduction in the capital-gains tax caused a 75 percent increase in capital-gains revenues. Then he has to explain how the '97 cap-gains cut was a giveaway to the rich, when in fact the rich paid more taxes, not less after the tax cut.

This is going to be good.

To his credit, Jonathan doesn't take the easy way out. A lesser man would put this behind him and admit the obvious: that I was right and he was wrong. Hey, I was wrong once. There's no shame in it. Jonathan gamely trudges on, incapable of throwing in the towel in this debate. (He reminds me of Joe Frazier in his famous fight against George Foreman. Frazier was knocked down four times and each time you pleaded with Smokin' Joe to stay on the canvas, but each time he got back up on his feet only to get his block knocked off again.) Jonathan has a semi-advantage in that he refuses to let the cold facts interfere with his class-warfare ideology. So in his article in The New Republic (I'm not recommending that you read it), Chait responds to my latest NR article (which I do highly recommend) wherein I show that the capital-gains tax did exactly what supply siders predicted: It raised revenues, increased asset values, promoted growth.

This debate really isn't very complicated. Back in 1995 and 1996 Jonathan (and his anti-supply-side guru Michael Kinsley, then editor of TNR ) wrote that the GOP's capital-gains cut would be a giveaway to rich fat cats with yachts. They predicted it would lose $75 billion in revenues. They said that advocates of the cap-gains cut were voo-doo economists. Yada, yada, yada. I wrote to Jonathan and told him he was wrong and that I would offer him a $2,000 wager that he was wrong.

Now here is what Jonathan writes. "I didn't take his bet because I agreed that capital-gains revenues would probably rise." (Wait, what about the $75 billion revenue loss?) Then Chait says that the revenue gain doesn't "vindicate my supply-side theory." Stop right there. If a 75 percent increase in cap-gains receipts doesn't vindicate the theory, what in the lord's name would? What would it take for you to come over from the dark side, Jonathan?

Jonathan's original argument was that cutting the capital-gains tax would simply shift their income to capital gains out of ordinary income to take advantage of the lower rate. That didn't happen. Overall income tax receipts grew faster after the capital-gains cut than before. There's no evidence of income shifting.

Since that argument didn't work, he says that cap-gains revenues went up because of the stock-market boom. Here he inadvertently stumbles on the truth. Look, when you cut the capital-gains tax, you increase the after tax rate of return on stock. When you increase the after tax rate of return on stock, its value goes up. If we were to cut the capital-gains tax to 10 percent or better yet to zero, we'd have a surge in the Dow and the NASDAQ. This is called a supply-side effect.

Jonathan says all of these good things would have happened anyway even if we hadn't cut the capital-gains tax. The stock market would have boomed from 6,000 to 10,000. Income-tax and capital-gains-tax revenues would have surged. We would have had 4 percent real economic growth. Perhaps. Okay, fine. If we're going to play this game of "what might have been," I think I can make a strong case that if we hadn't had The New Republic putting out its flat-earth-society economic drivel for all these years, we would have cut the cap-gains tax sooner, the economy would have grown even faster and the world would be a better place. In fact, I'm willing to bet on it.