When former President George W. Bush cut taxes, including his 2003 reduction in tax rates on investment, he always referred to it as putting more money in people’s pockets. I don’t want to be unfair, because the 2003 tax cuts were his best policy move. But Bush was never a supply-sider. Putting more money in people’s pockets is a demand-side argument.
Contrast that with Mitt Romney’s tax-policyspeech today at the Detroit Economic Club, where he touted his new across-the board 20 percent reduction in personal tax rates. The language is crucial: “By reducing the tax on the next dollar of income earned by all taxpayers, we will encourage hard work, risk-taking, and productivity by allowing Americans to keep more of what they earn.”
This is supply-side language. It is incentive language.
Many of us have been asking whether Romney understands the incentive model of growth. Namely, keeping more of what you earn, invest, or risk provides a bigger reward. And those rewards translate into a fresh tonic for economic growth.
Ronald Reagan understood this when he famously told people that he quit working as an actor because he only made about 10 cents on the extra dollar earned from the extra movie. Mitt Romney seems to understand this incentive model.