Let's take a look at chapter nine with the 1920s. And we're going to be looking at the tax cuts under Calvin Coolidge's regime when he was president from '23 to '29, also a Republican President. He was the vice president for Harding. But then Harding died of a stroke, and so he became president, then ran for a first term, was elected, and did not run for a second term. Nicknamed Silent Cal, did not say a lot. Funny story, Dorothy Parker, who was a poet, once asked him at a party, she said, Mr. Coolidge, I made a bet with you, that I can get more than two words out of you. And he replied with, you lose. So pretty sharp guy, very interesting tax cuts too. The first tax cut that he passed was the Revenue Act of 19, oops, 1924. And this is a very special Revenue Act. So for these revenue acts, you do want to remember the years. What's so special about 1924 for his Revenue Act is he lowered the bottom marginal tax rates for income taxes for the poor, which also included the middle-class as well. And he lowered them in '24, also for the rich. So he lowered the top marginal tax rates. And what happens to tax revenue, to income tax revenue from doing this after, of course, you account for baseline economic growth, is tax revenue rises. So as a whole, for the act, the economy has to be on the right hand side of the Laffer curve. It's very rare when you decrease tax rates historically that revenue to the government rises. But I'm going to explain where this is coming from in a bit. Another revenue act that he passed is in 1926. And in '26, he changes income tax rates. But he decreases them for essentially the rich. So he decreases the top rate or the very top rates for the rich. And I should explicitly write there's no change in this act to the bottom rates. And what happens to tax revenue to the government here is it falls. Recall from a previous lecture looking at Harding's revenue acts of 1921. And I'll write Harding, that Harding decreased the rates for the rich, but did not do anything to the tax rates for the poor. And what happened there was tax revenue, income tax revenue to the government decreased. So if you piece all these things together, looking at decreases in the income tax rates, oops, I'm sorry, for the top, and this would be for the top. That these two acts here, '21 and '26, essentially decrease the income tax rates for only the top income earners and tax revenue falls. So given consistency, lowering the top rate here should cause revenue to fall. The reason total revenue was rising after you account for baseline economic growth is that the unique thing about 1924 is that income rates were lowered for the lowest income individuals as well as middle-class because he's hitting those bottom rates as well. And the bottom rates were reduced significantly in '24, the very bottom rate went from 4% to 2%, which is a relative 50% decrease in tax liability for the bottom income tax rate payers versus around 80% of the population at that time. So what's going on here? I'm going to show you on another piece of paper. What's going on here is something that we discussed before. For lower income individuals, here we have a supply for labor, the demand for labor. And if we decrease the income tax rate, we will find something interesting. So this is, with this marginal tax rate right here, which let's say it's four percentage points before 1924 on income, this is the wage that the firms pay and this is the wage that's received after taxes or the net wage received by the workers. So by decreasing that tax rate, what's going to happen is the wages that firms pay relatively falls, which decreases the cost of labor to the firm. But the after-tax take-home pay is going to be higher for the workers who received their checks. So both the firms and then the majority of the population, which is lower-income middle-class, enjoy the lower tax rates too. And of course, consumer surplus and producer surplus increases, deadweight loss falls, and the number of workers employed here is going to rise. So you get a supply side effect which stimulates economic growth and also causes tax revenue to rise. The other way to show this, and I will show it with two graphs because sometimes when I put it on one, students get a little bit confused because there'd be a lot going on in one graph, is think of this, you got the tax rate. And this is the same case on both graphs. And we have tax revenue to the government. So what we're going to do is draw Laffer curve here. And I'm going to draw one curve here. Let's say that's a 100% tax rate. We will go ahead and draw that 100% down here. So we have somewhere else to compare to and this is not exactly to scale here, of course, going from four percentage points, two percentage points for tax rate. But here's the idea. The tax rate in '24, so 1924 for low income causes. So the decrease in the tax rate is what's causing that increase in the revenue. Meaning that for the lower income individuals, we're on the right hand side of this Laffer curve. But if you look at the richest of the richest of the richest people, which back then the third guy was Andrew Mellon, who came up with this idea. And the second richest person was Henry Ford, and the first was Rockefeller. Today, it'd be Bill Gates. If you think about the tax sensitivity of those individuals for any income over say $400,000 or even a million dollars to these people, they're not going to be very tax sensitive. So on the right hand side, let, or I'm sorry. So the Laffer curve is way up here for the ultra, ultra, ultra, ultra, ultra wealthy. And there's some, of course, peak here where there's some optimal tax rate to charge. So what happens essentially in 1921, so I'll write 1921. In 1921, Harding lowers the tax rate only on the rich, and we see that revenue to the government falls. Then in 1924, the income tax rates were lowered for the rich and the poor. And since overall income tax rose, that's really coming here from the 1924 Act on the poor. But for the rich, of course, given consistency, that would cause income tax revenue to fall to the government in '24. Then what happens is in 1926, right here, Coolidge comes out with another income, income tax cut piece of legislation. And it only increases, or excuse me, the only decreases the tax rates on the ultra rich, does nothing to tax rates of the poor. So of course, it has to be the case that we're finding the tax revenue falling again from that act. And so for the rich, and one thing that we'll see later when we look at the Kennedy tax cuts, and if we had the time, we'd find out with the Reagan tax cuts, and you will see with any tax cuts, is if the majority of tax cuts are given to the rich, since the rich are on the left hand side of the Laffer Curve, because they are so tax insensitive that what has to happen, is that income tax revenues have to fall. So you can use this in terms of thinking about tax policy today, and it'll be spot on again when the tax cuts go to the rich, because there's so tax insensitive, income tax revenue falls. If we want to see supply side effects like we did in 1924, you really have to give the tax cuts to the lower income individuals and even the middle-class, which is a much larger percent of the population. And when they, their labor incentives are affected, they're going to work more. And that's what causes that tax revenue overall to rise. So since 1924, we have not seen supply side economic effects like this. We have not seen tax revenue rise from tax cuts because there haven't been significant decreases in tax rates on the poor ultimately. Thank you for listening.