Tax Cuts Should be Temporary – Supply Side Economics
Supply Side economics is Keynesian economics!
That may be shocking to people who have not studied economics, but it is true. Long ago when Keynes developed what we now refer to as Keynesian economics, he talked about both spending increases and tax cuts as effective fiscal stimulus during a recession.
Supply Siders believe that tax cuts are more effective than spending increases, and some branches consider spending increases to cause harm. Based upon Supply Side theory, tax cuts that are exclusively designed to deal with a recession should be large in size, but short in duration. This little detail about counter cyclical fiscal policy is one that is often forgotten.
For the sake of clarity, I will add that not all people who want tax cuts support Supply Side Economics. Even those who are Supply Siders often support other economic theories as well.
Next week I will discuss a third school of economics, one that is closely tied to Supply and Demand Side Keynesian Economic Theory.
Until then I look forward to this discussion.