Gingrich's Grandiose Claims About Authoring The Supply-Side Revolution

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Alan Reynolds is a senior fellow at the Cato Institute and the author of Income and Wealth.
Whenever Newt Gingrich has been asked to explain why he is supposedly more “conservative” than other Republican presidential candidates, he has repeatedly replied that he “helped Ronald Reagan and Jack Kemp develop supply-side economics.” If that were true, I think I would know about it.


I was jointly responsible (with Jude Wanniski) for bringing the phrase “supply-side” economics into popular parlance in 1976. I helped write the economic policy chapters in Jack Kemp’s 1978 book An American Renaissance. I worked with David Stockman and Larry Kudlow in the first Reagan transition team in 1981. I was research director of the Kemp Tax Reform Commission in 1995-96.
What I most recall about Newt Gingrich is that Kemp arranged for me to meet with him in 1982 because Jack worried that Newt was being seduced by OMB Director David Stockman’s arguments that lower tax rates must take a back seat to deficit reduction. Stockman argued that deficits would absorb savings, crowd out investment and abort the 1983 recovery. I do not recall persuading Gingrich that Stockman was mistaken, but I believe Gingrich did oppose a 1982 law that rolled back incentives for business investment. Gingrich later opposed the Kemp-Kasten tax reform in 1986, but all was forgiven in 1990 when he tried to block the counterproductive “read my lips” tax hikes of the first President Bush. On balance, Gingrich was usually a political ally of Kemp and Reagan, like most of the young Republican congressmen at the time.

To suggest that the logic and evidence behind supply-side economics was in any sense “developed by” by Gingrich, rather than by numerous economists allied with Jack Kemp, is worse than the typical “Newtonian” exaggeration. It is simply preposterous. The story of what actually happened is ably retold in several books, most recently Econoclasts by historian Brian Domintrovic, and earlier in The Seven Fat Years by former Wall Street Journal editor Robert L. Bartley. There is no mention of Gingrich in such histories of supply-side economics.
The phrase “supply-side” was launched two years before Gingrich came to Congress. In April 1976 I persuaded Wall Street Journal editorial writer Jude Wanniski to embrace a label that Herb Stein coined at a conference I attended. Several of us had been talking and writing along similar lines since 1971, however, including Art Laffer, Nobel Laureate Bob Mundell and former Treasury Undersecretary Norm Ture.
If the test of supply-side authenticity was simply about who could dream up the lowest tax rate, nobody could beat Ron Paul’s comment in a recent debate: “What’s wrong with zero?” What’s wrong with zero is that it won’t get the bills paid. So, proposing to cut some taxes to zero (as Gingrich proposes for dividends and capital gains) necessarily means increasing some other taxes to fill the gap. Lower tax rates have often brought in more revenue than higher tax rates, particularly for capital gains and corporate profits, but that certainly does not mean that zero is the revenue-maximizing tax rate.
No well-crafted flat tax plan ever claimed to raise as much revenue as current law with a tax rate as low as 15 percent while keeping all the popular deductions. Asked about the obvious revenue losses, Newt says, “Terrific; that means we have to cut spending even more.” We need a lot more specific information about such hypothetical spending cuts before any politician’s hypothetical tax cuts might be taken seriously.
Repeatedly borrowing trillions more just to pay for unsustainable schemes like the 2010 payroll tax holiday is not what supply-side economics is about. Serious tax reform means finding ways of funding the government that will do the least possible damage to the economy, not assuming that faster economic growth alone can fix fiscal problems of the unprecedented size that we currently face. Runaway debt depresses growth precisely because it portends horrific future taxes.
Gingrich also gives himself great credit for “cutting taxes, cutting spending and balancing the budget for four years” as Speaker of the House from 1994 to 1998. He does deserve credit for persuading President Clinton to reduce the top capital gains tax to 20 percent from 28 percent in 1997. Revenues from capital gains subsequently soared to $89.1 billion in 1998 and $127.3 billion in 2000. But Newt can’t have it both ways. If he takes credit for the revenue windfall from a capital gains tax of 20 percent — which contributed mightily to the balanced budget after 1998 — then Gingrich cannot turn around and promise a similar fiscal miracle from his proposed capital gains tax of zero.

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