Does America Need a Supply-Side Comeback?
May 27, 2025 | 806 words | Economic Policy
A couple of things in the paper caught my eye over the weekend. One was an interview in the Wall Street Journal with supply-side economist Arthur Laffer who lent a hand back in the Reagan administration. Now 84 years old, Mr. Laffer has always believed lowering taxes spurs economic growth. This interview makes clear, though, that he does not think lowering taxes will ipso facto increase government revenue, which is how critics frequently mischaracterize and debunk the supply-side approach.
Instead, the well-known Laffer Curve depicts the proposition that tax revenue rises with marginal tax rates only up to a point – beyond which revenue actually starts to decline. This is a fascinating observation and suggests to me more effort should be put into identifying what that tipping point is, on maybe a regular basis. Though I am not sure how adjusting the marginal tax rate each year would go over with the electorate. Or with the Internal Revenue Service, which by all accounts is already overburdened.
In any event, Mr. Laffer is not interested in such accounting adjustments, for he has boiled everything down to one, simple proscription: “lower taxes.” This singular policy will accomplish every worthy objective: increase opportunity and growth, create a larger tax base which will result in higher government revenues, all while generating higher wages and an increase in living standards.
But higher wages and an increase in living standards for whom, exactly?
At one point in the interview, citing the burgeoning car manufacturing in his home state of Tennessee, he tells us rust-belt states like Ohio, Michigan, Pennsylvania, Illinois and Wisconsin drove those manufacturing jobs away with high taxes and “other policies that raise business costs.”
In a glib bit of analysis, he then notes how manufacturing jobs have increased in Southern states like Florida, Georgia, and Texas.
Is there anyone reading this interview who is not able to immediately recognize that auto manufacturers have moved away from a unionized work force at the first opportunity, in favor of a cheaper, non-union workforce? How does this move substantiate Mr. Laffer’s claim that higher wages are a natural by-product of spurring economic growth through lowering taxes?
To point out as Laffer does that when taxes go up the rich report less income, either because they use tax dodges that Congress has allowed, or because they work and invest less, says more about the mindset of our richest citizens, rather than identifying a flaw in the concept of marginal tax rates.
This, then, is where I must politely part company with the supply-siders. While I am four-square in favor of spurring economic growth, I am not nearly as convinced as Mr. Laffer that the benefits of such growth have ever been or will ever be spread around in any sort of equitable manner. The benefits always seem to coalesce at the top, or near the top.
The only thing a successful corporation seeks out more than lowering/eliminating its tax liability, is lowering/keeping a lid on its labor costs. It may offer rich compensation packages to top talent where the market forces it to. Everyone else in these organizations remain expendable, little more than an interchangeable part.
In the same paper on the same day, Senator Pat Toomey of Pennsylvania (2011-2023) wrote in to the Opinion page of the WSJ to sing the praises of the work he and his colleagues did in 2017, when Congress lowered the top corporate income tax rate from 35% to 21%.
“We recognized that increasing capital expenditures on technology and equipment would lead to productivity gains and higher worker pay. We thus reduced the after-tax costs of capital expenditures by allowing full expensing in the year in which it occurred rather than depreciating the costs over many years. Investment and workers’ pay surged.”
I, too, happen to think full expensing of a capital expenditure in the year it occurs is a great idea. I just take issue with how Mr. Toomey causally invokes the claim that workers’ pay surged. And I wonder if readers of The Wall Street Journal are too quick to take such statements at face value, in order to reassure themselves that all is right with the world.
In short, I do not have a serious argument with either Arthur Laffer or Pat Toomey since I am convinced both men have a handle on an important piece of the economic puzzle: how to spur economic growth – growth that obviously benefits all of society.
I just wish they and other supply-side advocates like them would spend more time thinking about the other important piece of the economic puzzle: how to move beyond ‘trickle down’ to achieve a more equitable distribution of the fruits of our country’s dynamic economic growth, among those with no ownership stake in the enterprise, and no leverage at the bargaining table.
Robert J. Cavanaugh, Jr.
bobcavjr@gmail.com