US tax reform briefing Brendan Smialowski/AFP/Getty Images

Supply-Side Amnesia

Would the tax-reform package that the US Congress will debate this fall yield a net benefit for all or most Americans, or would it be a handout to the super-wealthy? The question itself is dismaying, because Americans learned the answer more than 30 years ago.

BERKELEY – In the spring of 1980, Harvard University economist Martin Feldstein taught (alongside Olivier Blanchard) one of the best macroeconomics classes I ever took. Two and a half years later, Feldstein joined US President Ronald Reagan’s cabinet, where he chaired the Council of Economic Advisers until July 1984.

While in the White House, Feldstein waged a persuasive but lonely bureaucratic campaign against the Reagan administration’s 1981 income-tax cuts, arguing that they had been too big, and would prove economically painful if not corrected.

Feldstein’s position was not popular among other Reaganites. Rather than heed his warnings, Reagan’s chief of staff, James Baker, convinced others in the administration to stay the course, so that they would not have to admit that the president’s signature tax-cutting initiative had been a mistake.