RUSH: We have a junior from the University of Tennessee, the Tennessee Vols. This is Jordan on the phone. Hi, Jordan. It’s great to have you here. Hello.
CALLER: Hello, Rush. It’s an honor to speak with you.
RUSH: Thank you very much, sir.
CALLER: I just have a quick question. I am in a macroeconomics class. My minor is economics, and my professor drones on and on and on about the supply-side economics and how it does not work. And constantly in my test and even an essay, we had to talk about why supply-side economics does not work and why it’s not fair to the poor and why it increases income inequality. I just want to know the truth, I guess. I’m just tired of this.
RUSH: Okay, so, in the first place, it does work — and it works every time it’s tried, and it’s brilliant. It’s very simple to understand, and explain. But your professor…? I just want to understand this. Your professor said it doesn’t work?
CALLER: It doesn’t work, and it never has worked.
RUSH: And it never has worked because it’s not fair to the poor and it increases income inequality?
CALLER: Yes, sir.
RUSH: What does he say trickle down or supply-side economics is? Does he define it for you in the class?
CALLER: Yes. Lower personal income tax rates, reduce tax on incomes and savings, reduce tax on capital gains, reduce corporate income tax, is how he defines it.
RUSH: Well, those are the results of a belief in supply-side economics. Supply-side economics is simply capitalism. Now, let me give you some numbers. In 1981, when Ronald Reagan took office, and the top marginal — are you recording this?
CALLER: Yes, sir.
CALLER: I’m writing it down.
RUSH: Top marginal tax rate, Ronald Reagan took office, the top marginal tax rate was 70%. There were a bunch of different tax rates. Has he adequately explained to you what a marginal tax rate is?
CALLER: Not really.
RUSH: Okay. Let me explain, because that’s central to understanding this is understanding what a marginal tax rate is. In 1980… I’m guessing here, but let’s say there were 13 or 14 tax brackets. These are arbitrary numbers. I’m making these up. I don’t have the actual tables in front of me, but the way it worked is the first $10,000 you made, you paid 10%. The next $10,000 up to $25,000 a year from $15,000, you paid maybe 15% and on and on and on and on, until the top marginal rate — ’til you had you’d earned over let’s a $150,000 a year — every dollar over $150,000 was taxed at 70%. Okay? Did you follow that?
CALLER: Yes, sir.
RUSH: Okay. This was called ‘bracket creep’ back then. As you earned more, you end up in a higher tax bracket, and it’s the marginal dollars, the last dollars you earn — and the last dollars you earn are the dollars that define your wealth, or define your income. So when Reagan took office, the top marginal rate was 70%. Now, very few paid it, Jordan, because there were all kinds of tax loopholes that were built into the system back then. Not loopholes, but there were incentives to invest in this area of the economy. If you put your money here, you would not be taxed on that money. But still we had a top marginal rate of 70%, and the total take in tax revenue to the government in 1981 was about $480 billion. Okay?
RUSH: Now, in 1989, when Reagan left office, the top marginal tax rate had been reduced from 70% to 28%. The take to the Treasury almost doubled. It was $950 billion. So reducing marginal tax rates from 70% to 28% doubled Treasury receipts. Now, how did this happen? It happened because it created more taxpayers. It created more jobs by reducing the top marginal rate on people. If you tell people, ‘You’re going to keep 72 cents of every dollar you earn,’ you’re going to go out and earn dollars and not going to worry about sheltering them or hiding them. You’ll report your income. You don’t look for places to hide it. At 70%, you look for places to hide your income.
RUSH: So at a top marginal rate of 28%, more people were hired, because small businesses are Subchapter S corporations. Most of them file their income tax on a personal form, as they’re allowed by law, and so they weren’t hiring more people. Corporations of all kinds were able to hire more people. The capital gains tax came down. The corporate tax came down. This meant that there was more money in the private sector and not at government.
RUSH: Supply-side simply means leaving the money of creativity and productivity in the hands of the people who produce and create: the citizens. It’s their money! They earn it. Now, the reason that your professor says it doesn’t work, income inequality, is because we’re all different, and so many people don’t want to work as hard as others. You are finding yourself in a macroeconomics class, but many at your school are majoring in PE because they think it’s going to be easier. They’ll get a degree in that. They’re not going to go the hard route. You have an interest in economics. Some people don’t. Some people have an interest in being rocket scientists and going to the moon or Mars. Other people are content to get to 7-Eleven.
RUSH: We’re all different, Jordan, and in a capitalistic society… He calls it supply-side, your professor. Your professor — I hate to say this, but your professor — is a walking liberal cliche who doesn’t understand economics, and if he does understand it, he’s threatened by the concept of individual freedom and liberty and is trying to mold you students into people who are going to conform so that you agree with the concept that nobody should earn anything more than anybody else, that there should not be any poor people.
RUSH: But the only way that we can guarantee that kind of equality is to make everybody miserable.
CALLER: He went to Princeton, so…
RUSH: Princeton, Brown, I don’t care.
RUSH: He could have gone to the University of North Pole, and I’m sure the curriculum there is the same thing.
RUSH: But it’s just capitalism. Now, let me give you some figures that just came out today. The federal government announced — the IRS announced today — that last year they took in, just in the income tax, around $500 billion or $560 billion. This year, the federal government’s going to take in 25% less: $450 billion. Why do you think that is, Jordan? You’re the student; I’m the teacher. We’ve raised tax rates now from the 28% and we’re back up to 35%. Soon we’re going to be back to 39.6% federal.
RUSH: We have a federal deficit. With these numbers today, this year’s federal deficit guaranteed to be $2 trillion — not the $1.2 trillion, not the $1.7 trillion. We’re going to have a $2 trillion federal deficit. Now, why is it that April 15th is going to be a down day for the government? Their collection and income tax revenue is going to be down 25%. Why?
CALLER: Crowding out, possibly? I know it’s okay to have a budget deficit when you’re in a recession, so isn’t that okay?
CALLER: To have that is not good?
RUSH: No. No. Forget that. That’s another concept altogether. That’s Keynesian, and that means… Have you been told about John Maynard Keynes?
CALLER: Yes, sir.
RUSH: Yeah: spend money you don’t have to stimulate an economy. It never works. It’s never, ever worked. It prolonged the Great Depression.
CALLER: That’s what we’re learning right now, as a matter of fact.
RUSH: This is sad. You are paying nothing to call me and learn the truth, and how much are your parents paying to send you to this worthless class?
CALLER: (chuckles) Thank you, sir.
RUSH: At any rate, the government is going to collect $150 billion less in tax revenue because of unemployment.
RUSH: There are fewer people working. There are fewer people paying taxes. Why is that? Because we are in a recession. The government is borrowing so much money and printing so much money and yet taxing people at increasing levels so there’s not the money in the supply-side sector, in the private sector. Government has all the money. Government is deciding who’s going to get it — like the banks, and the auto companies, and how they have to spend it. There’s less money in the private sector for people to be hired, and if you’re not working, you don’t pay taxes. That’s how you explain $450 billion in tax revenue, 1981, doubling in eight years by reducing tax rates from 70% to 28%.
RUSH: The Bush tax cuts, after 9/11, is what kept this country in an economic boom, because any… Look, it’s very simple. If you’re a capitalist, and if you believe in the concept of individual liberty and freedom, then you have to accept the notion that what you earn is yours and that you are entitled to earn as much as you desire. Following rules, of course. And that there is nothing immoral about earning more than somebody else, just like there’s nothing immoral about you becoming an economics graduate and somebody else going to a junior college. You made the choice; that other person made the choice. Why should that person who decided to go to a community college come out and be vo-tech and learn how to use a scratchall, make as much as you who are investing whatever you’re going to invest in college to be an economist and perhaps go somewhere?
Why should you two make the same, and whose right and whose authority determines what either of you should make? That’s what your professor wants some central planner to decide, that you’re no better than somebody who works with a scratchall in terms of your value. I’m not talking about your morality or as a person. I’m talking about your value economically. You know, your value is something. You look at athletes. I’ll bet your professor thinks athletes are overpaid.
RUSH: He probably doesn’t think movie stars are overpaid ’cause they’re libs, but he probably thinks athletes are overpaid, and he probably thinks that the school gets, you know, they bend the rules too many times and let the football team not go to class all the time.
RUSH: What’s the value? What’s the value of a professional baseball player? Alex Rodriguez gets $270 million over ten years, whatever it is, because somebody’s determined he’s worth it.
RUSH: Okay? Now, your professor probably blanches at that notion. While Alex Rodriguez is making 270, some pauper playing for the Kansas City Royals is only making $2 million. ‘Only’ two million! That’s gotta be grossly unfair.
RUSH: How can Rodriguez get $270 million and some pauper shortstop for the Royals only get two million? Oh, the injustice of it all! What a rotten country.
CALLER: I just —
RUSH: Supply-side economics is not just tax cuts. Tax cuts are the result of a principle, and the principle is that we are individuals and that we have freedom to compete, to invest in ourselves, to become whatever we want. We could become slackers. We can become wealthy. We can become accomplished; we can become semi-accomplished. It’s up to us. No two people are the same. Now, he’s saying that supply-side doesn’t work because he’s looking at the various inequalities throughout, not just income, but other inequalities, and he looks and says, ‘It’s just unfair. It’s just unfair.’
RUSH: And then he also couples this… I’m sure he has the attitude that the rich are a bunch of SOBs, just on general principles.
RUSH: They’re mean, rotten cheaters, thieves, and liars. Of course, rich Democrats are not. Like Ted Kennedy and the whole Kennedy family.
RUSH: All they have to do is get up and they’re billionaires.
RUSH: They never had to work a day in their lives. They just get up. But that’s wonderful because they talk about the things your professor talks about, but you don’t see Ted Kennedy or any other liberal walking neighborhoods giving money away — unless he’s taken it from somebody else first. I implore you, Jordan, my man, to investigate independently the economist Friedrich Von Hayek (H-a-y-e-k) from the University of Chicago. He’s long dead. I urge you to. Does your professor ever talk about Milton Friedman?
CALLER: Uhhh, no, sir.
RUSH: He does?
CALLER: No, he hasn’t.
RUSH: Oh, he doesn’t. I’m not surprised. Milton Friedman. There’s a videotape, DVD series that Milton Friedman did that explains everything you want to know here in a classical economics sense. He’s written many books. He was brilliant, Milton Friedman. So is Thomas Sowell, who is at the Hoover Institution on campus at Stanford. But read Friedrich Von Hayek, read The Constitution of Liberty, and read The Road to Serfdom. They’re tough reads. These are intellectual treatises, but you will not be disappointed.
CALLER: Thank you so much, Rush. I appreciate that.
RUSH: You bet. Hang in there, because the country depends on people like you being open to the concept of individual liberty and what that results in.
RUSH: Thanks, Jordan. All the best to you.
CALLER: Thank you, sir.
RUSH: Go Vols!
RUSH: Here’s a good supply-side, demand side question to ponder. How many wheelchairs with motors is General Motors going to have to make before anybody wants to buy one?