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The Great Supply-Side Experiment of 2003

Contributed by mm | January 3, 2004 8:15 PM PST

Jerry Bowyer in this article argued the 2003 Bush tax cut provides evidence that the dubious claim of the supply-side economics, "cuts in marginal tax rates can actually lead to increases in tax revenues when tax rates are above the level of optimization," can be true. Actually, October and November 2003 saw federal tax receipts at $254.03 billion or $9.5 billion higher than the same months for 2002, and it appears that this is due to the big tax cut.

It may be correct that lower marginal tax rate can encourage people to expand the business and earn more money, and can in turn add to the federal coffin. However, I;m hesitate to believe what we saw in October and November is a direct result of the tax cut -- it simply comes too fast. One may argue people has an expectation built into their plan in early 2003, but it will not trigger a broad profit that soon. I will rather believe the spot evidence we saw in October and November is more a coincidence of the broad economic recovery that may happen anyway sooner or latter without the latest dose of tax cut.

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