What is supply-side economics?
Some supply-siders like to claim that the distortionary effect of taxes is so large that increasing tax rates reduces tax revenue. Like most economists, I don't find that conclusion credible for most tax hikes, and I doubt Mr. Paulson does either. Yet the supply-siders are right about one thing: Because higher tax rates reduce the size of the tax base, raising taxes generates less revenue than the "static" revenue estimates assumed in Washington would suggest.Mr. Reynolds thinks the first sentence in this paragraph (from my Wall Street Journal op-ed last week) is an unfair caricature of what supply-siders have added to the policy debate.
Apparently, Mr Reynolds takes supply-side economics to be the proposition that the tax base shrinks when you tax something. As any passing student in ec 10 can explain, this is true whenever the elasticities of supply and demand for a good are non-zero. By this definition, virtually all economists are supply-siders.
I stand corrected. I am glad we cleared that up.