Tax Cuts and Supply Side Economics
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Derek Hall
English 101
Julia McLeod
6 December 2011
Tax Cuts and Supply Side Economics
Supply Side Economics has been defined as “the school of economic theory that stresses the costs of production as a means of stimulating the economy; advocates policies that raise capital and labor output by increasing the incentive to produce” according to Princeton University (Princeton University Library). To an average person that is not a student of economics, this definition can be complex and difficult to understand, so we will simplify the philosophy using statistics, case studies of past applications of these policies, and most significantly the enduring outcome of its success in the American economy. The most important objective, is to find what policies expand and empower the United States domestic economy. Supply Side Economics has been argued in the past, but is needed to be made aware of today more than ever.
To have a primary exchange of ideas on why Supply Side Economics works so well, we must first find out what the exact policy entails. Supply Side has a few key principles that gives it a diverse recognition in contrast to the other views. First, the view of the “supply sider” is one of a tax based broadening. This belief is based on the theory that lowering the top marginal rates of income taxes will encourage and give more incentives to the individuals to produce and enter a new tax bracket. The second aspect of Supply Side Economics is that the deregulation of price controls will lower prices and increase supply as seen in Reagans Executive Order 12287. Last, and most vital to our modern trials, Supply Side Economics is projected to radically raise economic activity and growth by reducing unemployment rates as well as other negative economic indicators (Joint Economic Committee). These policies appear in the Executively signed legislations known as The Revenue Act of 1964, The Economic Recovery Tax Act of 1981, The Tax Reform Act of 1986, The Economic Growth and Tax Relief Reconciliation Act of 2001, and The Jobs and Growth Tax Relief Reconciliation Act of 2003.
A landmarked legislation that took the greatest step sanctioned for Supply Side Economics was first projected by the Kennedy Administration. President Kennedy stated to an Economic Club in New York on December 3, 1962 In short, it is a paradoxical truth that tax rates are too high today and tax revenues are too low – and the soundest way to raise revenues in the long run is to cut rates now.(John F. Kennedy Presidential Library & Museum) John Kennedys tax plan slashed the top marginal rate of taxes from 91% to 70%, decreased unemployment to 3.8%, and increased revenue by 1966 according to the Fiscal Year 2011 Budget of the United States Government: Historic Tables(GPO Access Home Page). According to a Joint Economic Committee report released in 1997, the annual investment of Americans grew by 6.1%, far greater to time periods both former to and well after the ratification of the Kennedy tax cuts. The same committee also reported that the nations GNP grew by 4.5%, which was almost twice as much as the GNP rate for the 1950s (Joint Economic Committee 1997). The achievements of Supply Side Economics have even reached