In order to understand why the concept of supply-side economics is the most viable alternative for economic prosperity, it is essential to the discussion to understand the nature of money, weath, and the underlying forces that drive our economy.
When I was younger, the phrase "The Great American Work Ethic" was a well known and renowned phrase in the landscape of America.
The operative word in that phrase is the word "ethic". Working hard for one's paycheck, no matter how large or small, is an ethical form of behavior. The reason for this is simple. It creates wealth. Wealth is not money per se, but rather is the value money has bequeathed up it by the amount of effort, work, and economic creativity of people in a society. A dollar is only a valuable as the amount of goods and services produced against it.
Consider the following analogy. If the government gave everyone in the United States $100,000.00 for standing at a street corner, wow, money for doing nothing, sign me up! But now go to the grocery store with that money and try to buy a loaf of bread! If you could even find a loaf, it would cost several times what it costs now! The reason for this is that no one is out making, transporting, or stocking that loaf of that bread all the people that did those jobs are now standing on street corners! Lot's of money in your pocket, but with no value.
But the government is not the economy. It is not by nature the engine of wealth generation, for that is the province of the individual citizens of the United States in a free market society. Those that work hard, that participate in the creation of goods and services that we purchase for our dollars, are the free men and woman of our society that create wealth. Creating an environment of better credit flow and lowering and simplifying taxes for the wealth producing private sector, so that those that best create wealth can continue to be more productive, is the ultimate solution for our economy, as this is the nature of free markets. That task is the providence of business, both large and small, and all of us who provide the "ethical" behavior of working hard to create the wealth of our society.
When marginal tax rates are lowered, this ability of this wealth creation mechanism is significantly enhanced. Daniel Mitchell, PHD from George Mason University, points out that "President Kennedy proposed across-the-board tax rate reductions that reduced the top tax rate from more than 90 percent down to 70 percent and thus tax revenues climbed from $94 billion in 1961 to $153 billion in 1968, an increase of 62 percent, due to the increase in economic activity, government receipts increased 33 percent after inflation. " Under President Regan, Mitchell states that, "once the economy received an unambiguous tax cut in January 1983, income tax revenues climbed dramatically, increasing by more than 54 percent by 1989 (28 percent after adjusting for inflation)." More money in the hands of wealth producers (including you and me) means more economic activity, more economic confidence in our money supply, and more government revenue as a result - actually lowering government debt through increase in tax revenue through increased economic activity.
Only when all people, from the very wealthy through the middle class and throughout all America perceive a more productive economy, when wealth is created through productive economic endeavors, when economic confidence is restored through the rise in 401K and all other market investments, increases in real estate values, and ability to obtain credit and pay back creditors, will real economic growth begin again in our country.
We must bring these economic policies, and the underlying ethic so profound to America, back to our economic and philosophical thinking.