Do tax cuts increase revenues?

Lots has been written already in Blogoland about the speciousness of Republicans' claims - based on the Office of Management and Budget's latest Mid-Session Review of the budget - that the Bush tax cuts have caused an explosion in tax revenues, vindicating the supply-siders. Mark Thoma has a nice post about a report on the issue from the Center for Budget and Policy Priorities. My two cents:

The supply-side argument is that tax cuts provide workers and businesses the incentive to work more and invest more, thus increasing the size of the economic pie and allowing tax revenues to grow even while tax rates fall. So, has there been an explosion in employment? No, the number of people employed as a percent of the population was 64.4 percent at its peak at the end of 2000, fell to 62 percent by mid-2003, and has now inched back up to 63.1 percent. Average hours worked per week by employees was 34.4 when Bush took office, fell to 33.6 in 2003, and is now at 33.9. Investment as a percent of GDP peaked at 18.1 percent in 2000, fell to 14.9 percent in 2003, and is now back up to 17.4 percent. GDP growth has bounced around in the range of 3-4% per year for the last couple of years, well below the pace set in the late 1990s. So where to the supply-siders think these new revenues are coming from? My guess (backed up by some of the data in the OMB report): widening inequality in the distribution of income - transfers of income from poor to rich and from workers to employers - has increased the share of income earned by those in higher tax brackets, resulting in higher revenues. Not a great story for the Bush crowd, I think.