When playing pool, the way players prevent one another from benefiting from lucky shots is to require each player to call what shot he/she is trying to make. If it happens, then fine. If something else happens, like the wrong ball falling into the wrong pocket, it doesn't count. The President's budget message to Congress each January is the fiscal politics version of calling your shots, though the administration would like us to forget this.
Each year the President's budget message contains five year projections of where the administration thinks revenues, spending and deficits will be. These projections are based upon the enactment of whatever tax and spending plan the President proposes with the message. So if a President suggests a bold new tax cut for example, the predicted effects of that tax cut are built into the numbers. What that means is that revisiting those numbers afterwards tells us if the predictions actually happened the way they predicted.
These numbers distill all of the spin, all the arguments, loaded catchphrases and sales slogans down to mathematical objective reality. In this case the numbers are produced and are sourced from the administration itself in a audited and vetted procedure that no one of either party has questioned for decades. So no one on either side of the aisle should be able to quibble with them.
In January 2002, after 9/11 and President Bush's first round of tax cuts, the administration suggested the rest of their major tax cuts and predicted a swift economic rebound. 9/11 was blamed for the deterioration of Federal finances leading to a $106 billion deficit projected in 2002, the first since 1997. Enacting the Bush plan for 2002 would
"...boost 2002 GDP growth by 0.5 percent and lead to the creation of 300,000 more jobs. The Administration has built its economic forecasts around the assumption that an economic stimulus package will be enacted."
Those forecasts led to projects that by FY2004, economic growth would have been such to generate $2,175 billion in revenues. Offsetting that was $2,189 billion in spending, or a deficit of only $14 billion. Don't take my word for it. The Bush administration figures here are at the OMB's website in Excel, and Lotus 123.
Well 2004 has come and gone. The speeches are all done, the beans all counted. Here then is the REAL "No-Spin Zone". The final report on spending in 2004 comes to us in the President's budget message in January 2005. Bush reported that revenues came in at $1,880 billion, while spending was $2,292 billion.
Let's review. Actual revenues were $295 billion less than what the administration predicted would be the result of their economic growth and tax plan. They were off by almost 14%. They called their shot. The called ball didn't fall in the called pocket. Not even close. The period between prediction and outcome started AFTER 9/11 and ended BEFORE Katrina, so no excuses can be given for unforeseen events.
Now, Keynesian economics posits that raising deficit spending can sometimes jumpstart economic growth. Could any spending restraint by the administration have dampened growth during this time? Hardly. Bush administration projections called for them spending $2,189 billion a year by FY2004. Actual spending came in $103 billion MORE than what they had promised to do. No restraint there. The called ball didn't fall. Not even close.
So what of my friend who pointed to state government revenues as proof the tax cuts were working? Well, the Center for Budget and Policy Priorities looks at state government finances closer than any other public source I know. Their data suggests that this area is subject to immense political spin. Turns out State government finances are still in fiscal crisis, though deficits are beginning to shrink. In other words, the growth we are seeing now merely is catching up from the fall those revenues took in recent years. Further, many states are "decoupling" various tax deduction items found in Federal tax codes, a stealth tax increase raising state taxes without fanfare or much notice.
In other words, while state tax revenues might be rising, they signify nothing but an accidental ball falling into the pocket, uncalled by any player. It's just not relevant to answering the question of whether Bush's tax cuts are working. The called ball didn't fall. End of story.