Which policy would a supply-sider prefer, an across-the-board tax reduction in income tax rates or a package of tax-relief measures that would give every household a $200 tax rebate and allow them to deduct the interest they pay on credit card purchases?

Answer 1

Supply-siders would prefer an across-the-board tax cut since they believe it would stimulate aggregate supply and aggregate demand. According to supply-side proponents, tax cuts not only give workers more take-home pay, but lower taxes give workers and investors greater incentive to work, save, and invest. These things shift the aggregate demand and the aggregate supply curves to the right. The other alternative gives taxpayers more disposable income, but it only serves to increase consumption. There's no supply-side effect with rebates and interest deductions. In fact, consumers are likely to save even less if they can deduct credit card interest.