One of the most frequently heard phrases in certain Washington policy circles is "the tax cuts are working." [...]What does the evidence show from tax cuts in the 2000's (in red) and tax increases in the 1990's (in blue) over the first six years of those recoveries? Check out the figure below.
The logic behind this claim falls under the rubric of "supply-side economics." The basic idea is that taxes constrain investment and employment growth. So if taxes are cut, by this logic one expects investment and employment would grow more quickly. This mobilization of investment and labor in turn would generate faster overall growth. Extreme forms of supply-side arguments assert that the extra growth results in a surge of government revenue large enough to allow the tax cuts to "pay for themselves."
Contrary to supply-side arguments, both investment and employment grew considerably faster in the 1990s, when tax increases raised revenue, compared to the 2000s, when the tax cuts lowered revenue. Investment grew 35% more quickly in the 1990s, and employment grew 6% faster.What was it President Bush said at the beginning of the month?
And hardworking Americans have used this tax relief to produce strong and lasting economic growth.The problem is that nearly all of the growth in incomes was among those in the upper reaches of the income ladder and the majority of investment tax breaks went to those making more than $1 million.