India, the Supply-Side Nation

It’s not every day that I post an article I found on the Al-Jazeera website. Who would have guessed that Al-Jazeera is becoming an advocate of supply-side economics? The article is written by Jude Wanniski, author of The Way the World Works, (named by the National Review as one of the 100 most influential books of the 20^th century), and who popularized the idea of the Laffer Curve. He also coined the phrase “Supply-side economics.”

The article explains how India is adopting the principles of the Laffer curve, and as a result, is prospering economically. The Laffer Curve, named after American economist Arthur Laffer, shows that higher tax rates can discourage production and reduce tax revenues. This means that when taxes are too high, tax rates can be lowered to increase tax revenues. On December 4, 1974, Jude Wanniski was present when Arthur Laffer drew the curve on a napkin for Dick Cheney, then White House deputy chief of staff in the Ford administration. Wanniski was impressed with the logic and simplicity of Laffer’s theory. While many Democrats still fail to believe in the principles of the Laffer Curve, they have proven to work time and time again.

Wanniski notes that Indian Finance Minister Chidambaram is a big proponent of the Laffer curve philosophy.

In his first term as finance minister, Chidambaram experimented with the Laffer Curve and for every 10% reduction in direct income levies, revenues rose 14%, rising seven-fold between 1991 and 2001.

Back in power last year, he abolished long term capital gains and cut the tax on short-term capital gains by one half.

I was most pleased to read that Finance Minister P Chidambaram is hinting at a "massive" change in the country's tax system, slashing tax rates on personal and corporate incomes in a second gamble on "the Laffer Curve", which Chidambaram mentions by name as an idea he has embraced with enthusiasm.

I wish the Finance Minister would take some time and explain his country’s fortunes to some of our members in the U.S. Congress.