Like most crank doctrines, supplyside economics has at its core a central insight that does have a ring of plausibility. The government can’t simply raise tax rates as high as it wants without some adverse consequences. And there have been periods in American history when, nearly any contemporary economist would agree, top tax rates were too high, such as the several decades after World War II. And there are justifiable conservative arguments to be made on behalf of reducing tax rates and government spending. But what sets the supply-siders apart from sensible economists is their sheer monomania. You could plausibly argue that, say, Reagan’s tax cuts contributed around the margins to the economic growth of the 1980s. But the supply-siders believe that, if it were not for Reagan’s tax cuts, the economic malaise of the late ‘70s would have continued indefinitely. They believe that economic history is a function of tax rates--they insisted that Bill Clinton’s upper-bracket tax hike must cause a recession (whoops), and they believe that the present economy is a boom not merely enhanced but brought about by the Bush tax cuts.

It doesn’t take a great deal of expertise to see how implausible this sort of analysis is. All you need is a cursory bit of history. From 1947 to 1973, the U.S. economy grew at a rate of nearly 4 percent a year--a massive boom, fueling rapid growth in living standards across the board. During most of that period, from 1947 until 1964, the highest tax rate hovered around 91 percent. For the rest of the time, it was still a hefty 70 percent. Yet the economy flourished anyway. None of this is to say that those high tax rates caused the postwar boom. On the contrary, the economy probably expanded despite, rather than because of, those high rates. Almost no contemporary economist would endorse jacking up rates that high again. But the point is that, whatever negative effect such high tax rates have, it’s relatively minor. Which necessarily means that whatever effects today’s tax rates have, they’re even more minor.

This can be seen with some very simple arithmetic. As just noted, Truman, Eisenhower, and Kennedy taxpayers in the top bracket had to pay a 91 percent rate. That meant that, if they were contemplating, say, a new investment, they would be able to keep just nine cents of every dollar they earned, a stiff disincentive. When that rate dropped down to 70 percent, our top earner could now keep 30 cents of every new dollar. That more than tripled the profitability of any new dollar--a 233 percent increase, to be exact. That’s a hefty incentive boost. In 1981, the top tax rate was cut again to 50 percent. The profit on every new dollar therefore rose from 30 to 50 cents, a 67 percent increase. In 1986, the top rate dropped again, from 50 to 28 percent. The profit on every dollar rose from 50 to 72 cents, a 44 percent increase. Note that the marginal improvement of every new tax cut is less than that of the previous one. But we’re still talking about large numbers. Increasing the profitability of a new investment even by 44 percent is nothing to sneeze at.

But then George Bush raised the top rate to 31 percent in 1990. This meant that, instead of taking home 72 cents on every new dollar earned, those in the top bracket had to settle for 69 cents. That’s a drop of about 4 percent-- peanuts, compared to the scale of previous changes. Yet supply-siders reacted hysterically. National Review, to offer one example, noted fearfully that, in the wake of this small tax hike, the dollar had fallen against the yen and the German mark. “It seems,” its editors concluded, “that capital is flowing out of the United States to nations where ‘from each according to his ability, to each according to his need’ has lost its allure.”