Given these indisputable facts, it would stand to reason that liberals should be very receptive to supply-side tax cuts. But, liberals don’t rely upon reason, especially when taxes are involved -- at least not in public. Their commitment to Policy Number 3 of the Communist Manifesto -- “a heavy progressive or graduated income tax” -- demands that they spew class envy and denounce supply-side tax cuts as “tax breaks for the rich.”

But, it would be foolish to assume that liberals are stupid. To the contrary, many liberals believe the validity of Laffer’s curve. However, they believe we are currently below the optimum rate. A recent German study estimates that the optimum maximum marginal tax rate is about 60%. By contrast, Republican Congressman David Dreier estimates that it is “probably about 22%.” On the one hand, since the precise shape of the Laffer curve for a given country, tax code and economic conditions is unknown, they can make a plausible (but specious) argument for 60%. On the other hand, we must rely upon empirical evidence to make an educated guess about the optimum tax rate. America’s history with tax cuts strongly points to Dreier’s estimate. To make their case for 60%, liberals would have to dismiss the experience of presidents Coolidge, Reagan and George W. Bush as spurious (the Kennedy tax cut reduced the maximum rate from 91% to 70%).

Perhaps this unintended consequence of supply-side tax cuts is a dirty little secret about why Republicans have been able to cut taxes, even when Democrats have controlled the Congress.

A second unintended consequence of supply-side tax cuts is to make innovative tax reform such as the “flat-tax” or the “fair-tax” plans much less likely. Republican success with supply-side tax cuts has been so effective that it has naturally bred an “if it ain’t broken, don’t fix it” mindset.

Milton Friedman was once asked if he thought America was ripe for junking the current tax code in favor of something like the flat-tax (a single tax bracket rather than several graduated brackets). He expressed great pessimism, explaining that many legislators, both Democrat and Republican, thrive on America’s contorted tax code to secure their power. It is routine for lawmakers to create special loopholes in exchange for campaign contributions. Tinkering with the maximum marginal rate through supply-side cuts appears to be as compelling as creating special loopholes.

Of course, there is no rational reason to believe that the Laffer curve would no longer apply when just a single tax rate is involved. Nevertheless, human nature compels all of us to stay with a strategy that has proven effective. Like it or not, the success of supply-side tax cuts has in the past, and may continue in the future, to delay real tax reform in America.

A third unintended consequence of supply-side tax cuts since 1964 is acceleration of the growth of government. As demonstrated by President Coolidge in the 1920s, this consequence can be avoided by simply exercising fiscal discipline. As noted in Part 1 of this discussion, he used the increased revenues to pay down a third of the National Debt. But, consider what has happened since 1964.

President Kennedy proposed a tax cut that lowered the maximum marginal tax rate from 91% to 70%. He and his Keynesian advisors knew that “permitting” businessmen to keep 30 cents of the last dollar they earned would provide a lot more incentive than just 9 cents to bring money out of municipal bonds into business investment, and thereby stimulate the economy. However, Keynesian economics advocated deliberately engaging in deficit spending, which they also believed to be a stimulant. It certainly didn’t help during the Great Depression, but liberals rarely pay attention to history -- what they believe should work is all that matters.

In full knowledge of the Coolidge experience and Kennedy’s belief in Keynesian economics, Barry Goldwater called the Kennedy tax cut “gimmickry” and insisted that spending cuts should be made prior to any tax cuts. Kennedy had budget deficits in every year of his presidency and there was every reason to expect more deficits. Goldwater was correct in what the results would be as total federal expenditures increased by 32% after the tax cut was made, far exceeding the increased revenues.

President Reagan made supply-side economics one of the keystones of his administration. A great deal regarding economic theory had changed between 1964 and 1980. By 1974, economist Arthur Laffer had begun to popularize his curve, and in 1976 Milton Friedman received the Nobel Prize in Economics for his work that discredited Keynesian economics. Reagan’s policies were thus at the cutting edge of economic theory.

Following Goldwater’s caution of 1964, Reagan wanted the Democrat Congress to cut spending to avoid a repeat of the Kennedy tax-cut experience. Although Democrats agreed to cuts, they did not honor what they agreed to. Instead, they increased spending by $1.30 for every $1.00 of increased revenue.

President George W. Bush turned the Republican Party upside down and made it into a big-government, free-spending Party. And his spending has been far less responsible than what Barry Goldwater called the “dime-store New Deal” policies of President Eisenhower, who was very frugal by today’s standards. He has increased total federal expenditures by well over 20% during his two terms. This is the greatest percentage increase since Lyndon Johnson’s presidency.

In conclusion, supply-side tax cuts have unquestionably benefited all Americans. They have stimulated America’s economy and created millions of new jobs. However, using the increased revenues to expand and grow government does not enhance our liberty and will eventually overwhelm us. It is irresponsible of our Congress to simply cut taxes and let the chips fall where they may for how the increased federal revenues will be spent. Yet, that is the attitude of the current Republican leadership, which underscores the fact that they are unfit to lead.

It is imperative for us to insist that the candidates we support reverse the growth of government by continuing to cut taxes and to act responsibly by using the increased revenues to pay off the National Debt before it, and our bloated government, consume our Republic and our freedom.