It is widely assumed in conservative circles that Republicans, even under President Bush, pretty much had tax policy right but failed on the spending side. Unfortunately, there's more to it. If conservatives plan to recapture ascendancy on economic issues, they better come to a clearer understanding of supply-side theory. Then perhaps they can articulate it and recapture it as a powerful electoral weapon.
Even when history is on their side, Republicans seem to find a way not to capitalize on it and routinely forfeit the narrative to Democrats, who dwarf them in the communications department from sheer repetition, if nothing else.
The Reagan tax cuts were so phenomenally successful that it's amazing Democrats were able to recover politically as quickly as they did. Despite historical revision to the contrary, all income groups did much better under the Reagan cuts. Remarkably, a Treasury Department study showed that 86 percent of people in the lowest 20 percent of income earners in 1979 graduated into higher categories during the '80s.
The tax cuts skewered then prevailing Keynesian economic theory, producing sustained peacetime economic growth without inflation. The reductions in marginal-income- and capital-gains tax rates even increased revenues.
It doesn't matter how much we repeat this truism or how blue our faces become in the process; the relative deficit explosion during the Reagan years was not caused by the tax cuts but by increases in government spending. Yet Democrats succeeded in establishing the narrative that the tax cuts were at the expense of essential government services and that the cuts increased the deficit and the national debt, thus dubbing the '80s the decade of greed.
President George W. Bush, in campaigning on and implementing his tax cut policy, didn't attempt to sell the nuts and bolts of supply-side theory, only that tax cuts stimulate economic growth. But when he did attempt to articulate the theory beyond a superficial level, he sometimes confused the issue.
Instead of arguing, as did such vintage supply-siders as Ronald Reagan and Jack Kemp in the early '80s, that reductions in marginal income tax rates would spur economic growth because they would provide incentives to produce and invest (supply-side), he said the growth would be (and was) a result of people having more to spend and spending it (demand-side). He compounded the confusion when he attempted to sell his tax rebate plan with the same rationale.
This will play right into incoming President Obama's hands as he rolls out his argument that his further planned tax rebates and his massive spending increases (in the forms of his "stimulus" plan and future bailouts) will stimulate economic growth by increasing demand.