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Some reading on my own

Dynamic economics only tells you that cutting taxes raises tax revenue if you can'd add. That's not dynamic economics, it's voodoo economics -- to quote the one time Pappy got it right.
Say, for example, that taxes take about 20% of GDP. (That's a bit high for the Federal net tax take). Say the GDP is 10 trillion, so the net tax take is 2 trillion. Say the base growth rate is 3%, so tax revenues will grow at 3% in the absence of a tax cut. That means next year's tax revenue, if there is no tax cut, is 2.06 trillion. Now say we cut taxes by 1/4, to a 15% net rate. Next year's GDP is 10.3 trillion and 15% of that is 15.45 trillion. That's assuming no increase in growth. To get 2.06 trillion at a 15% rate, next year's GDP has to be 13.73. That's a 37% growth rate. So, to get an increase in tax revenue, we the 25% cut in tax rate has to lead to more than a 10fold increase in the growth rate. Look at the record. The rate of economic growth in this country has never exceeded 10%, and in the world as a whole, I don't believe a national growth rate has ever exceeded 20%, and only the Soviet Union ever came close.

To see why this is impossible, ask yourself: what proportion of the tax cut would have to be invested? A key variable in dynamic economics is the ICOR, incremental capital output ratio. The U. S. ICOR is about 4. We have seen that to get increase in revenue, in this example, the increase in GDP would have to be about 4 trillion. This requires a 16 trillion investment -- based on a 5 trillion tax cut. So over 3000% of the cut would have to be invested.


rogerashton

(Professor, Dept. of Economics and International Business, Drexel University, Philadelphia, PA, USA).