SUPPLY-SIDE ECONOMICS

Reawakened in the United States in the late 1970s and early 1980s, the theory of supply-side economics looked at economic behavior by analyzing the supply of consumer items instead of the demand for them. This view of economics specifically focuses on the disincentive effects of taxes on private sector productivity, investment, and growth. Supply-side economists argues that reducing the tax rates on the supply-side would lead to greater economic growth, greater employment, and larger bottom-line tax revenues later.

Supply-side economics is not new in economic thought; its roots can be traced to Jean Baptiste Say's Treatise on Political Economy and Taxation (1817). The renewed interest in supply-side economics of the 1980s was stimulated by Dr. Arthur Laffer's Laffer's Curve and by the administration of President Ronald Reagan (1981–1989), which adopted this kind of economic thinking.

The Laffer Curve established to calculate the highest rates of tax the market would bear in various areas of the economy, always emphasizing tax reduction as the solution to economic issues. The supply-side theory of economics calls for a reduced government, reduced government spending, and a de-emphasis on any fiscal targets. Instead, great emphasis is placed on the free market and the de-regulation of private industry by the government. By the end of the supply-side era of the 1980s, the U.S. national debt was higher than at any other period of its history. The tax cuts did stimulate business and bring in more revenue, but government spending continued to grow in spite of the rhetoric.