REPPIG EHT:

Supply-Side Ideas, Turned Upside Down (N. GREGORY MANKIW, 11/01/09, NY Times)

[T]he signature domestic issue in President Obama’s first year in office — health care reform — is shaping up to be the antithesis of President Reagan’s supply-side economics. [...]

The key economic concept here is the marginal tax rate, which measures the percentage of a family’s incremental income to which the government lays claim. During Mr. Reagan’s time in office, the top marginal tax rate on earned income fell to 28 percent from 50 percent.

The verdict on supply-side economics is mixed. The most striking claim associated with the theory — that cuts in marginal rates could generate so much extra work effort that tax revenue would rise — is unlikely to apply except in extreme cases. But substantial evidence supports the more modest proposition that high marginal tax rates discourage people from working to their full potential. Mr. Reagan’s behavior as a movie actor is a case in point.

President Obama has said he wants to raise marginal tax rates on high-income taxpayers. Yet under his policies, the largest increases in marginal tax rates may well apply not to the rich but to millions of middle-class families. These increases would not show up explicitly in the tax code but, rather, implicitly as part of health care reform.

The bill that recently came out of the Senate Finance Committee illustrates the problem.

Dan Rostenkowski better start running....

Posted by Orrin Judd at October 31, 2009 7:25 PM