I was originally going to ask Atrios this question, but figured he'd be too busy partying in Spain to respond to an e-mail from a nobody like me. SoI'm just going to throw this one out to the world at large.
I was reading Robert Rubin's NYT piece about the deficit, where he briefly mentions the Clinton tax increases and the economic slowdown that emphatically did not occur afterward, and it got me to wondering:
How much empirical evidence is there to support the conventional wisdom that tax cuts have a stimulative effect (and the converse)? Are they typically followed by economic booms, or just excuses? I'm struck by the apparently counterintuitive results of Clinton's tax increases and Bush's tax cuts, and wondering if they're truly typical, and if there are any graphs that overlay major tax cuts and increases over a chart of economic growth.
I have pretty much zero econ-fu, but the two possibilities that came to my mind as to why the Clinton tax increases and the Bush tax cuts had such "unexpected" results were:
1) Any stimulative impacts of tax cuts are outweighed by a drag effect exerted by an increased deficit (uncertainty, interest rates, interest payments).
2) Cuts/increases on taxes on wealth and the wealthy have a very different impact from taxes on work, because the damper on incentive and initiative just isn't there - I don't think anyone's going to be discouraged from hoarding and accumulating wealth just because the tax rate on it has gone up. I never really bought the incentive explanation for cutting taxes on work, either - I can't picture someone passing up a six- or seven-figure salary because the government would take too much, so why bother.
I know, one could argue that Clinton benefitted from the "peace dividend", while Bush had the misfortune of an economy crippled by 9/11 and Iraq, but I just don't buy it. In the short run, maybe, but at this point 9/11 andIraq are just convenient excuses.
Anyway, I'm sure my question has probably already been asked and answered a thousand times over - I'm hoping someone can direct me to some juicy-yet-intelligible-to-the-dumbass-layman research on it. I did a quick search, but it didn't really yield what I was looking for.