Yglesias on supply side theory

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Greg Mankiw links to this approvingly under the banner “We Are All Supply-Siders Now.” And it’s true that this is Piketty pointing to a “supply side” effect. On the other hand, the distinctive contention of the supply-siders is that lower taxes on the rich are the key to economic growth. In reality, economic growth was much stronger in the 30 postwar years than in the past 30 years of the low-tax era.


Francois' response: Focusing on tax rates is pointless. Despite the fact that the top tax rates in theory ranged from 70 to 91%, the government took in significantly LESS revenue during that period than they did later, when rates dropped into the 50s. Loopholes can make even 200% tax rates into 10% effective tax rates.

Growth was better then, in part because taxes and spending were LOWER. Plus of course there were a ton of other factors, but claiming that a horribly designed tax system was good for the country is just bogus. Any economist will tell you that a flatter system with few deductions is more efficient for gaining revenue and for promoting growth than a loophole ridden progressive monster of a tax system.