Proof (Yet Again) That Supply-Side Economics Works

The New York Times must've caused themselves a great deal of agita going to print with this headline:

Surprising Jump in Tax Revenues Is Curbing Deficit

Ouch! You mean you can actually take in more money by having lower taxes than higher ones?!? What a novel concept! Well....not to those of us who know the hows and whys of supply-side economics (also known as "trickle down economics"). Let me explain to those of you who aren't quite clear how this works:

Businessman A owns a Subchapter S corporation (which means that all the company's profits are counted as his personal, direct income) and makes $500,000 a year. Under the Clinton tax brackets, he got taxed federally at 39.5%, not counting state and local taxes. Then, in 2001, his income tax is lowered from 39.5% to 35%, meaning he gets to keep more of his income...$22,500 more, to be exact. What is businessman A going to do with this money, you ask? Well, he could do a few things. He could a.) invest it back into his company, meaning he'd have buy some more stuff, which creates revenues for another company that he does business with, since he's buying their merchandise, b.) hire a new employee, which would create more tax revenues for the federal government, since that employee will get taxed as well, c.) invest it personally, either into a CD (which creates taxable interest), or even a mutual fund (which also creates capital gains and interest income, all of which are taxed). The only place that Businessman A could put the money where it WOULDN'T create more tax revenues for the government is in a safe-deposit box or under his mattress.

That, my friends, is supply-side economics in a nutshell. The more money you keep, the more you spend. And the more you spend, the more somebody gets taxed.

However, the geniuses at the Times (note the underlying sarcasm) seemed genuinely amazed that such a concept actually works. To wit:

"An unexpectedly steep rise in tax revenues from corporations and the wealthy is driving down the projected budget deficit this year, even though spending has climbed sharply because of the war in Iraq and the cost of hurricane relief."

"Unexpected"? Not to this guy.

Someone should force Arthur Sulzberger Jr., Bill Keller, and their resident "economist" Paul Krugman to read Milton Friedman, because obviously, they still don't have even the slightest clue as to how economics work, particularly supply-side, Laffer Curve economics.

Duh.