Do Tax Cuts Lead to Economic Growth?

[Burke]

This graph is ridiculously misleading. The reason why the graph shoots down in 2003 is because it's a five year average for the following five years and takes into account the 2008 recession. Magically the outcome is that the Bush tax cuts corresponds with a decline in growth... I could do the same thing by taking a 10 year forward average and blaming a fall in 1998 due to the French winning the World Cup.

On the question itself, the answer is not necessarily. I don't agree with Ricardian equivalence - the doctrine that tax cuts have no impact on spending - because people are short-sighted and have a need for immediate gratification (inclining them to spend additional income rather than save it). On the other hand - in terms of the present economic context - the existence of high levels of consumer debt may mean tax cuts are ineffective, because additional income is used to pay down debt rather than on consumption. This means the money is channeled towards banks who then channel the money to pay overseas debtors - i.e. a massive leakage and a minimal stimulative effect on the domestic economy.