Technology and Science News - ABC News. Supply- side economics - Wikipedia. Supply- side economics is a macroeconomic theory. It was started by economist Robert Mundell during the Ronald Reagan administration. According to supply- side economics, consumers will then benefit from a greater supply of goods and services at lower prices; furthermore, the investment and expansion of businesses will increase the demand for employees and therefore create jobs. Typical policy recommendations of supply- side economists are lower marginal tax rates and less government regulation. Atkinson's Supply- Side Follies. Its use connotes the ideas of economists Robert Mundell and Arthur Laffer. The Laffer curve is one of the main theoretical constructs of supply- side economics. Classical Liberals opposed taxes because they opposed government, taxation being the latter's most obvious form. Their claim was that each man had a right to himself and his property and therefore taxation was immoral and of questionable legal grounding. Early on, this idea had been summarized in Say's Law of economics, which states: . Wanniski advocated lower tax rates and a return to some kind of gold standard, similar to the 1. Bretton Woods System that Nixon abandoned. While the latter focus on changes in the rate of supply- side growth in the long run, the . The curve need not be single- peaked nor symmetrical. The Laffer curve embodies a postulate of supply- side economics: that tax rates and tax revenues are distinct, with government tax revenues the same (nil) at 1. Supply- siders argued that in a high tax rate environment, lowering tax rates would result in either increased revenues or smaller revenue losses than one would expect relying only on static estimates of the previous tax base. Jude Wanniski and many others advocate a zero capital gains rate. Taxes act as a type of trade barrier or tariff that causes economic participants to revert to less efficient means of satisfying their needs. As such, higher taxation leads to lower levels of specialization and lower economic efficiency. The idea is said to be illustrated by the Laffer curve. Supply- side economists have less to say on the effects of deficits, and sometimes cite Robert Barro’s work that states that rational economic actors will buy bonds in sufficient quantities to reduce long- term interest rates. However, some economists dispute this assertion, pointing to the fact that revenue as a percentage of GDP declined during Reagan's term in office. Income tax rates were cut several times in the early 2. Although those responsible for the cuts had claimed the cuts would increase tax revenue, this did not occur. Income tax revenue did not reach even close to 1. Bush's. Council of Economic Advisors, offered similarly sharp criticism of the school in the early editions of his introductory economics textbook. President Reagan argued that because of the effect depicted in the Laffer curve, the government could maintain expenditures, cut tax rates, and balance the budget. This was not the case. Government revenues fell sharply from levels that would have been realized without the tax cuts.– Karl Case & Ray Fair, Principles of Economics (2. To address these criticisms, in 2. Congressional Budget Office conducted a dynamic scoring analysis of tax cuts advocated by supply advocates; Two of the nine models used in the study predicted a large improvement in the deficit over the next ten years resulting from tax cuts and the other seven models did not. A comprehensive demolition of the dangerous Arthakranti/BJP bank transaction tax proposal. Who pays the income tax, the payroll tax, the estate and gift taxes? Who bears the burden of the gasoline and tobacco taxes? If Congress were to raise this tax rate. The Nationals paid up big for Adam Eaton this winter, sending a trio of their top prospects to the White Sox in exchange for one of baseball’s best leadoff hitters. Martinez was alternately exactly where he needed to be (11 strikeouts) and far from it (8 walks), which made him the first pitcher ever to reach both those marks in. The supply- side history of economics since the early 1. The 1. 92. 0s. Yet tax revenues actually went up significantly. With the reduction in rates in the twenties, higher- income taxpayers reduced their sheltering of income and the number of returns and share of income taxes paid by higher- income taxpayers rose. The stated goals of the tax cuts were to raise personal incomes, increase consumption, and increase capital investments. Evidence shows that these goals were exceeded by large degree. Reaganomics. The fiscal policies of Ronald Reagan were largely based on supply- side economics. Ronald Reagan made supply- side economics a household phrase, and promised an across- the- board reduction in income tax rates and an even larger reduction in capital gains tax rates. During Reagan's 1. Reagan described as . However, under Reagan, Congress passed a plan that would slash taxes by $7. Critics claim that the tax cuts worsened the deficits in the budget of the United States government. Reagan supporters credit them with helping the 1. As a result, Jason Hymowitz cited Reagan—along with Jack Kemp—as a great advocate for supply- side economics in politics and repeatedly praised his leadership. Krugman later summarized the situation: . Unfortunately, they failed. Supply- side advocates claim that revenues increased, but that spending increased faster. However, they typically point to total revenues. For example, of the increase in revenue from $6. FICA taxes). Supply- siders cannot legitimately take credit for increased FICA tax revenue, because in 1. FICA tax rates were increased from 6. For the self- employed, the FICA tax rate went from 9. Those tax hikes on wage earners, along with inflation, are the source of the revenue gains of the early 1. However, this did not turn out to be the case on the spending side; Paul Samuelson called this notion . But many supply- side economists doubt the latter claim, while still supporting the general policy of tax cuts. Economist Gregory Mankiw used the term . They argued that if people could keep a higher fraction of their income, people would work harder to earn more income. Even though tax rates would be lower, income would rise by so much, they claimed, that tax revenues would rise. Almost all professional economists, including most of those who supported Reagan's proposal to cut taxes, viewed this outcome as far too optimistic. Lower tax rates might encourage people to work harder and this extra effort would offset the direct effects of lower tax rates to some extent, but there was no credible evidence that work effort would rise by enough to cause tax revenues to rise in the face of lower tax rates. Similarly, when politicians rely on the advice of charlatans and cranks, they rarely get the desirable results they anticipate. After Reagan's election, Congress passed the cut in tax rates that Reagan advocated, but the tax cut did not cause tax revenues to rise. Bush derided Reagan's supply- side policies as . However, later he seemed to give lip service to these policies to secure the Republican nomination in 1. Historical state data from the United States shows a heterogeneous result. In 2. 00. 3, Alan Murray, who at the time was Washington bureau chief for CNBC and a co- host of the television program Capital Report, declared the debate over supply- side economics to have ended . This fiscal deterioration will reduce the capacity of the government to finance Social Security and Medicare benefits as well as investments in schools, health, infrastructure, and basic research. The combined loss in consumers' and producers' surplus is offset in part by the gain to the government in tax revenue. But the offset is only partial; the loss to. The San Francisco- based company reported a net loss of $29.8 million, or 7 cents per share, for the first quarter ended March 31. Moreover, the proposed tax cuts will generate further inequalities in after- tax income. These critics argue that the Bush tax cuts have done little more than deprive government of revenue, increase the deficit, and worsen after- tax income inequality. The Bush administration pointed to the long period of sustained growth, both in GDP and in overall job numbers, as well as increases in personal income and decreases in the government deficit. ATRA permanently extended the Bush tax cuts for households earning less than $4. While results show a temporary decline in tax receipts, they later recovered due to economic growth. In this analysis, it is difficult to discern the reason for the decreases in tax revenue because 2. Total Federal Revenues in FY2. Bush signed the Economic Growth and Tax Relief Reconciliation Act of 2. Rather than wait for the start of the new fiscal year, income tax rate reductions started on July 1, 2. In addition, rebate checks were sent to everyone who filed a 2. October 1, the start of the new federal fiscal year. More of the 2. 00. FY2. 00. 2, including cuts in the estate tax, retirement and educational savings. Income tax rates were immediately reduced and rebate checks issued (without waiting for the new fiscal year). Federal revenues in FY2. FY2. 00. 0. Federal revenues in FY2. FY2. 00. 0, but by 2. The cumulative total of federal revenues less than in FY2. Federal revenues include revenue from different taxes that were cut, stayed the same, or were raised. For example, the Social Security FICA tax rate stayed the same while the maximum income subject to the tax was increased each year, resulting in a tax increase for those earning more than the previous limit. Including increasing tax revenues from taxes that stayed the same or were increased hides the magnitude of the revenue decrease in taxes that were cut. Income tax rates were cut and income tax revenues were lower than the FY2. But, by 2. 00. 6 revenues exceeded the 2. Likewise Corporate income tax rates were cut and revenues were lower than the FY2. But, by 2. 00. 5 the inflation adjusted take exceeded that of 2. Since tax cuts took after a stock market crash, and their effects were contemporaneous with both a recession and the 9/1. In 2. 00. 6, the CBO released a study titled . When compared with the cost of the tax cuts, the best case growth scenario is still not sufficient to pay for the tax cuts. Previous official CBO estimates had identified the tax cuts as costing the equivalent of 1. GDP in revenue. According to the study, if the best case growth scenario is applied, the tax cuts would still cost the equivalent of 1. GDP. In that case, their tax compliance model did yield significant revenue increases: To illustrate the potential effects of tax rate cuts on tax revenues consider the example of Russia. Russia introduced a flat 1. Ivanova, Keen and Klemm, 2. The tax exempt income was also increased, further decreasing the tax burden.
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