Great Experiments in American Economic Policy: From Kennedy to Reagan

By Thomas Karier | Go to book overview
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5
Budget Busters

In one of the most celebrated events in American history a band of colonists in 1773 heaved crates of imported tea into Boston Harbor in retaliation for a tax imposed by British Parliament. The enduring popularity of the Boston Tea Party can be explained in part because it symbolized the American spirit of liberty, one that would not be compromised by British law or military force. But there is a secondary explanation for the enduring popularity of this event; it symbolized a universal antipathy for the tax collector.

Proponents of supply-side economics clearly tapped into this populist theme with their call for massive tax reductions. Supply- side economics, however, was more than just another tax revolt. It included a unique argument, which if true, made the federal tax system appear utterly foolish. The claim was simple: the same amount of revenue collected by the Internal Revenue Service at prevailing tax rates could be collected at significantly lower rates. By slashing tax rates, the economy would experience such a dramatic expansion that the tax base would soar, providing more than enough funds to offset the loss from lower rates. With this argument, supply-siders raised the stakes; taxes were not just an onerous burden, they were an absurd and unnecessary burden.

The promise of supply-side economics was a free lunch, dinner, and breakfast all rolled into one enticing offer. Lower tax rates

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