donsutherland1;1058924059]IMO, tax cuts that are fully funded e.g., either matched by offsetting revenue increases or spending reductions are far better than those that are not financed. To President Reagan's credit, initially there was an attempt to seek deep spending reductions. But that effort failed and then was not sustained. Reagan also confronted stagflation where a supply side remedy was useful.
In contrast, in the current situation, the nation has witnessed a shock to aggregate demand. Its problem is not a matter of a lack of aggregate supply, hence supply side remedies are not the right medicine this time around.
Furthermore, down the road the nation faces enormous long-term fiscal challenges. To address those issues, the nation will need to combine tax hikes, discretionary spending reductions (including Defense spending), and entitlement reform. Entitlement reform will very likely require fundamental health care reform that addresses that sector's chronic excess cost growth problem. The IMF suggests that the largest, but not whole share, of fiscal consolidation be achieved by spending reductions.
IMO, a formula that is comprised of two-thirds spending reductions/reduced growth in spending and one-third on the revenue side would probably be useful. It would be fairly close to the successful Canadian fiscal consolidation of the 1990s, though the necessary U.S. adjustment is much larger than Canada's.
Given the gravity of the fiscal imbalances, some revenue increases will be necessary. Needless to say, those increases cannot be implemented all at once nor should they focus strictly on a narrow base of taxpayers.
President Clinton signed his 1997 tax cuts into law in August 1997. The law took effect beginning in 1998. Average annual economic growth during the 1992 Q4-1997 Q4 period was 3.5%. During the 1997 Q4-2000 Q4 timeframe, it came to 4.2%. Hence, there was a modest uptick in economic growth. But myriad factors, including but not limited to the tax cuts, contributed. In any case, prior to the tax cuts, aside from the initial years of economic recovery, economic growth was robust. In contrast, during the 2000 Q4-2008 Q4 timeframe, economic growth averaged 1.7%.
Of course details may differ. However, the differences attributed to human behavior are not so large that one can argue that had the tax cuts not been implemented, tax revenue would have been no higher than what it actually was.