The short answer is no. The long answer is that lowering taxes in general puts more money back in your paycheck and more money in the hands of investors. Neither of these things stimulates the economy. They are economically neutral.

Taxes do not disappear into the gaping maw of government never to be seen again. They are spent. In the calculation of the Gross Domestic Product (GDP), government spending is counted as being a part of the economy. Private accumulation of wealth removes money from the economy and re-injects it in what is essentially the same way as government. Both government and private investors spend in order to accomplish an objective. The only difference is the profit motive.

What the profit motive implies is that private investors are attempting to remove more and more money from the economy. Ostensibly, the money removed is then re-invested. So what the profit motive boils down to is control. Private investors control how their accumulated wealth is spent. The profit motive does not imply any restraint. Any single private investor is willing to acquire and control all of the wealth in the world.

Government controls how taxes are spent, and its motives are slightly different. Government is not, in terms of its mission, interested in accumulating more and more wealth. So the amount of control it has over how money is spent is relatively stable in the sense that its motives do not imply an attempt to control all spending.

That is the source of tension between government and private investors. Private investors want it all and government just wants some.

At the heart of the question, do lower taxes stimulate the economy, is another question. What does stimulate the economy? According to the Federal Reserve, more money in circulation stimulates the economy. But, taxes are not money taken out of circulation. So on the face of it, lowering taxes has no effect on the money supply. So the lowering of taxes alone will not stimulate the economy.

What taxes are is money spent in a way that is different than the way a private investor would spend it. That recasts the question again. Is private investment better for the economy than government spending? It can be, but only under the right conditions.

Innovation is the key component of economic growth, that and population. We can ignore population as a growth factor as it is a constant. Innovation is not necessarily high tech, but is technical. Any step an individual takes to produce more, with the same amount of time and effort, creates a personal surplus. The same applies to the entire population. That surplus is traded. In the classic division of labor theory, specialization increases the likelihood of innovation. The problem is that a surplus does not necessarily translate into an economy. You have to have someone else with something to trade to you for your surplus.

Private investment creates one of the conditions necessary to improve the economy, creation of a surplus, whether in goods or services. This immediately presents the problem of who to trade it to. Hopefully, and usually, there is someone out there that has been busy creating his own surplus and we live happily ever after. Money was invented to make the process of finding someone to trade with less arduous.

Money is an abstraction of the trading process and makes everyone in the economy a potential trading partner. Now we are back to the money supply. Reducing taxes does not increase the money supply. That means that the market for the innovation created by private investment has not grown and the goods and service surplus created can’t be matched to buyers. Simply put, the new jobs created by the private sector are offset by the jobs lost in and through the public sector.

Don’t buy it? If you chart GDP growth since 1957, you see that the basic trend in GDP growth is down. Tax rates peaked in 1978. Taxation is approximately the same now as it was in 1957. There are two apparent instances of GDP spiking down when taxes went up, two instances of GDP spiking up when taxes were going up, and several instances of the GDP spiking down when taxes were going down or were stable. If taxation were highly correlated with economic growth, you would expect GDP growth to closely match the path of tax rates. Clearly, there are more important forces influencing GDP growth.

x = % y = year; Sources BEA and Dept. of Treasury

Maybe a different perspective is necessary to show the economic neutrality of taxation. Government spending drives innovation of its own. Companies that do business with government and even government agencies strive to create innovation. A defense contractor is more competitive if innovation is a goal. An unemployment office clerk can earn a promotion if innovation is a goal. Innovation is not strictly the purview of private investors.

The tabulating machine was developed to perform census calculations. The computer was developed with funding from the government to calculate artillery trajectory tables for troops. The jet engine was developed with government funding for military aircraft. Tang was developed as refreshment for people aboard spacecraft. On and on.

The government can’t tax 100% of people’s incomes. Equally, business can’t pay their workers nothing for their labor. Equilibrium must be maintained. Just remember that the profit motive has no inherent restraint, whereas government does. It is more likely that a private investor will try and pay you nothing than it is that government will tax you at 100% of your wages.