In one of those links I posted above, Greg Mankiw - who was Bush's chair of the Council of Economic Advisors - estimated through econometric modeling that for every $1 in income tax cuts, the federal government lost 83 cents in revenues.
It is important to note that conservative economists are generally correct about the efficacy of government in that the marginal rate of a unit of economic growth is affected by changes in tax rates, i.e. you get more GDP out of tax cuts (to a point). But the absolute levels of income tax cuts causes declines in revenues to the government than there otherwise would be. IOW, lower taxes and you get higher GDP but lower government revenues than otherwise there would have been.
but we cannot prove that....
We have a very good idea about what happens.
Maybe the unasked question is, how effectively would the gov't have spent that 83 cents in improving the economy and creating jobs that the private sector would with the extra dollar in taxes it didn't have to pay? And BTW, the cost of income (labor) taxes may be 83 cents, but it's closer to 50 cents for capital taxes, or so I hear.
There are instances where a tax cut did pay for itself. From a column in Slate:
Let's look at three. First, back in the 1920s, Treasury Secretary Andrew Mellon pushed Congress to enact a series of tax cuts. The U.S. dropped the top marginal income-tax rate from 73 percent to 25 percent. Tax receipts from the wealthiest Americans rose. According to Treasury data, income taxes paid by Americans making more than $100,000 per year increased from $302 million to $714 million between 1922 and 1928, with the rich's share of income taxes paid rising from 35 to 61 percent.
Second, Kennedy-era income tax cuts brought the top marginal rate from an eye-watering 91 percent down to a still-eye-watering 70 percent in 1964. The wealthiest earners paid more tax after the tax cut, some say, even though the rate dropped 21 percentage points. An analysis by Laffer showed, for instance, that in 1965 people making more than $100,000 a year paid $3.76 billion in taxes, versus the $2.1 billion forecast under the higher rate. A few economists say that Ronald Reagan's income-tax cuts, which dropped the top bracket's rate to 50 percent, had a similar effect. Berkeley economist Brad DeLong, for instance, writes, "Arthur Laffer is probably right at the top end: reducing the top tax rate from 70 percent to 50 percent is probably a revenue gainer and surely not much of a loser."
Third, we look abroad. In the 1990s, Ireland's parliament enacted legislation that took certain corporate income tax rates down to 12.5 percent, one of the lowest rates on earth. Receipts climbed. The country, in its "Celtic Tiger" boom period, rapidly became richer. Corporate tax revenues jumped from less than 2 percent of GDP to more than 3 percent of GDP.
Do tax cuts ever "pay for themselves"? Rarely. - By Annie Lowrey - Slate Magazine
So - here we have 3 cases where tax cuts did pay for themselves, yet others say you only get 17cents on the dollar? One wonders how these 2 things can both be right.
AND - what about tax hikes? If the gov't raises taxes by a dollar, how much more revenue do they really get? Remember, the higher the rate, the more people find ways not to pay more taxes, by legal or other means. AND - what does gov't do with that money that is better for the economy than if they had left taxes the way they are? AND - how much money in foreign investments coming into the US do we not get because we raised the rates? AND - how much money in domestic investments go offshore where it can get a better return than if he rates were not hiked?
I have no idea how the economists figured out the true costs of tax hikes or cuts. Not sure if they take into account the changes in investment behavior that a tax rate change brings with it, or how much expenditures may change. Some of this stuff may be unknowable until after the fact, but at least it oughta be considered for whatever it's worth. And there are so many other factors involved, who can say for sure how much benefit you get or give from a change in tax rates.
