Trickle, Trickle, Trickle....

"Trickle-down economics." "Voodoo economics." "Reaganomics." Ooh, I'm getting a chill down my spine. I am referring, of course, to the poorly understood and very maligned idea that is "supply-side economics," with a title much newer than the idea itself. What is it, and why do liberals say it doesn't work? Let's discuss.

What we call supply-side only got its name in the '70s, thanks to some of Nixon's economic people, and frankly, that alone should be reason to look for a new title. But it has a long pedigree, going back to Adam Smith and other greats of the time. It's not so much a philosophy of the size of government as a question of how to get the most bang for your (literal) buck where state revenue is concerned. And it is a simple idea, really: Very low taxes may not bring in a sufficient amount of revenue, but high taxes strangle the productive capacity of taxpayers, causing them to earn less income, therefore they pay fewer taxes, therefore the government gets less revenue as well. The trick is to find an optimum tax rate at which citizens earn the most income and pay the most taxes. In twentieth-century circumstances, that generally means tax cuts, especially on the most productive members of society--the rich.

There have been lots of criticisms of this idea, some of them rather sophisticated and pointed, admittedly. All too often, though, especially when voiced by partisan leftists, such critique devolves into "tax cuts for the rich," "Republicans looking out for their fellow fat cats," etc. And also, liberals have claimed that these policies don't work, that they only benefit the wealthy and end up causing economic slumps down the road.

What actually happens when these "unfair" tax cuts go into effect? Let's look at one of the more famous extended examples of this working, those terrible "Roaring Twenties" of the Coolidge presidency.

After a nasty recession in the early '20s, Harding and then Coolidge pushed through, over intense opposition from progressives in Congress, a drastic tax cut. Top rates went down to 25 percent, lower than they have been at any point since. What happened? Well, if you're even passably familiar with 20th-century America, you probably know there wasn't a sudden economic collapse, a bankrupt government, a disintegration of law and order, etc. U.S. GDP grew by 59 percent between 1921 and 1929, and even more importantly, during this same period, annual tax revenue over the same period grew from about $300 billion per year to $700 billion per year.

But the other feature of these 1920s tax cuts is especially worth dwelling on. So top earners, i.e. the rich, saw the greatest reduction in tax rates. That means the rich bore less of the total tax burden under Republicans Harding and Coolidge, right? Well, actually, no. Statistics show that when the first of the 1920s' Revenue Acts was passed, those making over $100,000 paid about one-third of all taxes per year. By decade's end, after all the tax cuts had taken effect, said group paid two-thirds of the total burden. Conversely, while those making over $100,000 saw their average income increase by a healthy 15 percent, those earning between $10,000 and $100,000 saw a whopping 84 percent growth in income. In other words, the farther down the economic ladder one was, the better deal one got from these "tax cuts for the rich." It might be noted further that minorities weren't excluded from this good fortune; black Americans saw a rapid improvement in their standard of living over the decade, until by 1930 their unemployment rate was slightly below that of whites.

Since I mentioned "Reaganomics" as one of the derogatory terms used by critics of supply-side policies, it bears mentioning how things went when similar policies were tried in the '80s. Reagan began his administration with across-the-board tax cuts, provoking the inevitable caterwauling from liberals; once more, the government did not fall apart, but saw a doubling in annual income tax revenue over the course of the '80s. Moreover, the top 1 percent's share of the tax burden rose by 40 percent, despite having their income tax rates lowered from 70 to 28 percent, while the bottom 60 percent saw a 20 percent drop in its share. As in the '20s, there was remarkable growth among the lower and middle classes, with particular expansion among middle-class and small business-owning African-Americans.

That these periods of prosperity were followed by economic downturns in the '30s and early '90s should be taken into account, of course. But by the same token, we cannot and should not ignore the very real economic improvements up and down the ladder that took place after the implementation of supply-side policies. They made a positive difference in America.

But if liberal mockers of supply-side really want a target to unload on, I can give them one just as good as Reagan. Namely, a President who cut the tax rate for top earners from 91 to 70 percent, proportionally a far greater cut than, say, G.W. Bush undertook; a man who argued high taxes caused low revenue and defended tax cuts on capital gains as a means of "obtaining capital and thereby the strength and potential for growth in the economy." His name was John F. Kennedy.