Its well established that tax cuts can stimulate economic growth. However, the amount of economic growth you get out of tax cuts is relative to how much of a burden upon production that current taxation levels represent. For example, if your taxes are 50% of your income, then you may not be as productive as you could be because half your income is taken from you. Thus if your taxation is reduced to 30%, you probably would be more productive.
However, if your taxation is 30%, and you are quite productive at that level of taxation, then cutting your taxes to 25% will more than likely not result in the same level of productivity increases than going from say 40% to 30% would. If a tax cut only results in you doing something that you would have done otherwise, then your not getting a whole lot of stimulus from the tax cut. However, if a tax cut allows you to do something that taxation was preventing you from doing, then it will stimulate the economy.
As business investment, personal investment, economic growth, employment growth, median income growth, and virtually every major economic measure was stronger in the 90s than it was following the Bush tax cuts, one would be hard pressed to argue that the level of taxation that we had in the 90s was putting a burden on productivity, consumption, or investment.
In the long term private sector growth has a greater multiplier effect. However, if the private sector is contracting, then increases in public sector spending can certainly moderate economic contraction and shorten a recession because it introduces economic activity into the economy that would have not otherwise existed in the short term, and it increases the velocity of money in the economy.
Once the pumped is primed again so to speak, government spending should moderate and growth in the private sector should take over.
