Stevenson tackles history of tax cuts

June 28, 2021 Rear Vision

The ongoing American debate about tax cuts for the rich has been raging since the 1980's. Betsey Stevenson, professor of public policy and economics, explained where the idea of supply-side, or "trickle-down" economics originated.

"This was an idea made famous by Art Laffer who famously drew on a napkin, you have tax rates going up and tax revenue going up until you hit a peak, at which point if you have tax rates any higher, tax revenue will actually go down because people will stop working or they’ll stop reporting their income," she said. "Either way, you see tax revenue actually going down and Art Laffer told Reagan, 'We’re on the wrong side of this curve. We can actually cut our tax rates without losing tax revenue because we will give people such strong incentives to work and report their income truthfully, that we won’t lose revenue, in fact we may even gain revenue.' "

She notes that tax revenue actually dropped between 1981 and 1984, creating a sustained period of deficit spending which has lasted to the present day.