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October 15, 2015

It's mid-October, a time when Americans become fascinated with all things macabre: creepy vampires, blood-thirsty werewolves and various things that go bump in the night.

For most, however, the real scare factor is minimal. We recognize monsters are fictional, and even if they were real, we know they can be killed off with a sharpened stake or silver bullet.

But if you're looking for a meaningful scare, there's one documented apparition that's actually possessed otherwise rational people. Even worse, it's decidedly harder to kill than a werewolf, and it has the capacity to cause actual harm.

What is this hard to kill phantom of which I speak? Why, it's the ghost of supply-side economics, which most recently manifested on Sept. 28.

That's when Donald Trump unveiled his plan to create jobs and stimulate the economy by implementing significant tax cuts that disproportionately benefit the wealthy. Trump claimed this would "create jobs and incentives of all kinds," thereby significantly enhancing economic growth. Better still, he assured America, "all this does not add to our debt or deficit."

If that sounds eerily familiar, just add the phrase trickle down and you'll have full-blown supply-side economics.

In essence, the theory of supply-side economics is based on three main premises. First, cutting income taxes, particularly for high-wealth individuals, frees up their income to "trickle down" and benefit virtually everyone, because the wealthy will use their tax relief to create faster job growth. This enhanced job growth will trigger rapid economic expansion and, hence, create growing wages for most.

Indeed, according to the theory, the growth in jobs and personal income for the majority of workers will be so great that even though the taxes of top earners are being cut, overall tax revenue will be undiminished.

What's scary is that this theory has been law since 1981 and continues to enjoy broad support, despite no evidence that it works. Consider that from the end of World War II until 1980, top marginal federal income tax rates were high, ranging from 92 to 70 percent. During this era of high federal income tax rates, the nation's gross domestic product, or GDP, grew at an average rate of 3.8 percent per year, after inflation. Then America cut top tax rates significantly beginning in 1981 and continuing through 2007, when the rate was down to just 35 percent, or half of its 1980 level. (The Great Recession isn't included on purpose, to avoid having that historic downturn distort the comparison.)

This means America has experimented with supply-side economics for more than 30 years now, which is a pretty good sample size. And what happened? Well the economy did not boom. Indeed, real GDP grew slower post supply side — by a full percentage point annually — than it did during the high tax decades.

Not surprisingly then, the promised trickle-down effect of more, better paying jobs for most Americans never materialized. Indeed, rather than growing, the real incomes of the bottom 90 percent of workers have declined since supply side, while only the wealthiest 10 have percent realized inflation adjusted income growth.

And as for the tax cuts being revenue neutral, well, that hasn't happened either. But exploding deficits are the predictable and natural consequence of cutting taxes on the only individuals whose incomes have grown over the last three decades. That's not ideological, that's math.

Yet, despite all — and I mean all — the evidence culled over the three decades since its implementation showing that supply-side economics doesn't work, the theory not only keeps rising from the dead, it continues to garner the support of decision makers. Where's a good silver bullet when you need one?

Source: State Journal-Register