Are you familiar with Lindsey's "The Growth Experiment"? IIRC his study found only one instance of a rate cut "that paid for itself", and that was the capital gains cut of 1978. From Martin Anderson's "Revolution" you can learn that the Reagan team never made a claim that rate cuts would pay for themselves, only that they would stimulate growth and recoup some of the revenue loss predicted by static analysis. Anderson spends a good number of pages debunking "the myth of the supply siders" and disassociating the Reagan program from the "myth". Anderson was one of President Reagan's chief economic advisors dating back to his time as Governor, so Anderson's memoir carries some weight.
No, I was not familiar with that particular book. However, I have now looked at a few articles about it on the web. In particular, there's a critique of the book at http://www.prospect.org/web/page.ww?section=root&name=ViewPrint&articleId=5314.
Regarding Anderson's statement that the Reagan team never made a claim that rate cuts would pay for themselves, I believe that to be correct. I previously read a National Review article by conservative columnist Bruce Bartlett at http://www.nationalreview.com/nrof_bartlett/bartlett031303.asp that stated:
In fact, no one in the Reagan administration ever said that the 1981 tax cut would pay for itself. This is just a canard that is assumed to be true because it has been repeated so often. Every official statement ever made by President Reagan or any of his staff made clear that the tax cut would lose large revenues, and administration budget documents projected large revenue losses that were almost identical to Congressional Budget Office estimates.
Regarding capital gains tax cuts paying for themselves, I haven't studied the issue closely and know that there is some controversy about that. That's why I referred to "any major cut in income tax rates" above. However, I did have a discussion about this with someone on this forum a few months ago. I'll repeat it the remainder of this message. Before I do, though, thanks for the information on the two books. Anyhow, following is the excerpt from my prior discussion:
Now, maybe you don't consider these capital gains tax cuts to be "major tax cuts", but I think that a cut that increased revenue can be said to have paid for itself. Do you agree?
You're right to suggest that there may be some disagreement as to whether capital gains tax cuts are "major tax cuts". According to a 2002 CBO report titled Capital Gains Taxes and Federal Revenues:
Individual income tax receipts from capital gains realizations normally make up about 4 percent to 7 percent of individual income tax revenues (see Table 1); they are usually between 2 percent and 3 percent of total receipts. Yet they receive a great deal of attention in revenue forecasting.
In any case, I haven't studied the effect of capital gains tax cuts on revenues. Taking a quick look at some of the on-line studies, however, there appears to be some disagreement on this topic. Following is an excerpt from a favorable Cato study titled The ABCs of the Capital Gains Tax:
On balance, the evidence supports the case for an immediate capital gains tax cut. The economic evidence--and more important, recent actual experience-- suggests that a rate reduction would increase capital investment, new business formation, jobs, and the rate of growth of GNP. When the positive economic impact of a capital gains tax cut is fully accounted for, the current proposed capital gains tax cut will almost certainly be a revenue raiser over the long term or, at worst, will leave the deficit unchanged.
However, following is an excerpt from an unfavorable study titled How Much Will the Capital Gains Tax Cuts In The House-Passed 1997 Tax Plan Really Cost?:
The official estimates of these provisions is that they will increase tax revenues by $2.7 billion over the 1997-2002 period, and then lose $37.5 billion over the following five fiscal years. Even based on these estimates, one must question the soundness of such a fiscal policy because of its ever-growing cost in future years. Citizens for Tax Justice has concluded that the official figure are probably grossly optimistic. We find that a more reasonable estimate of the revenue cost of these proposals is $169 billion over ten years.
Also, following is an excerpt from an unfavorable study titled: Would a Capital Gains Tax Cut Stimulate The Economy?:
In the past, the Joint Committee on Taxation has estimated that capital gains rate reductions of the magnitude assumed in the current proposal would boost realizations sufficiently to increase revenues in the first year or two that the proposal is in effect. After this initial surge, however, the additional realizations would subside, and revenues would decline. Another factor reducing revenues over time is that investors would shift more funds into assets that generate capital gains to take advantage of the lower tax rates. By moving more funds out of assets that generate more highly taxed ordinary income — such as interest and dividends — and into capital gain assets, investors would pay less in taxes overall, further reducing revenues to the Treasury over the long term. Although no official Joint Tax Committee estimates of the proposal are available, these effects would be expected to result in revenue losses totaling more than $50 billion over the next ten years. (In 1999, the Joint Tax Committee estimated a similar proposal to cost $52 billion between 2000 and 2009.
Hence, not having studied the issue in detail and seeing the amount of apparent disagreement there is on this topic, I withhold my opinion, at least until I can look at the data in more detail. Unfortunately, there appears to be less data available on this topic. In addition, the volatile nature of capital gains revenues makes it a harder area to study. However, it should be remembered that capital gains revenues normally make up just about 4 percent to 7 percent of individual income tax revenues. Still, I do plan to look at them when and if I have time and will post anything interesting that I find.
Lindsey explains everything through supply-side incentives, makes selective use of the data, and tells a simplistic and polemical story.
IIRC Lindsey, then a Harvard prof, had his grad students run a complex regression analysis of the Reagan era to see what effects, if any, the tax cuts had on the economy. The book is a version of this study intended for the lay reader, but the data and how it was developed is described there in detail.
I saw no spinning of the evidence by Lindsey. If he wanted to spin a story instead of relate what his study discovered he could have claimed that any or all of the rate cuts increased the take to the Treasury- who would have been the wiser? That idea has a life of its own, as we know too well. As it is the only cut that showed an increase in revenue was signed by Carter, an amusing irony. Moreover I think Lindsey's subsequent career in Dubya's administration speaks of Lindsey's integrity. He didn't agree with the administration's estimate of the cost of the Iraq war, and was let go when he wouldn't lowball the cost. It's obvious in retrospect who was correct in this dispute.
Regarding Bartlett, Bartlett is expressing Anderson's sentiments in that quote you cite. Martin Anderson goes a bit further, he names the guilty parties who plagued the Reagan economists with exaggerated and false claims about their program (Jude Wanniski and George Gilder, just to spoil the suspense).