Supply-side reforms like cutting taxes on capital can boost overall welfare but may increase inequality by favoring skilled workers. Lowering labor taxes, on the other hand, can harm capitalists. The impact of these reforms on different groups depends on how easily capital can substitute for unskilled labor. In the short term, capital tax cuts may not benefit unskilled workers as much as in the long term. After a tax cut, there can be a period of over-optimism due to varying levels of knowledge among individuals.