You are correct that a lot of factors are always at work in determining the economy’s fate and thus tax revenues than just tax rates. For example, the late 1960s economy was boosted by the Vietnam War ramp up of government spending, so it wasn’t just the Kennedy tax cut.
Generalizations in economics are always prefaced with the term ceteris paribus, or “other things remaining equal”. In analyzing empirical results, of course, those other things are always dancing around, making for endless debate in faculty lounges and insuring full employment for us economists.
The subject of time lags is fascinating to me since I did a lot of research on it in graduate school. It is sadly underappreciated by journalists and politicians and we are now paying the price. For example, the stimulus bill totaling some 3/4 $trillion last winter is only about 10% spent, according to recent news reports. I knew this would happen when they passed it and the advocates made extravagent promises about how quickly and powerfully it would help the economy and create jobs. It is entirely possible that the stimulus will have its biggest effect just when the economy is recovering on its own. The ramp up in government programs designed to be countercyclical would end up being procyclical, adding to inflation.
But then, maybe that’s the idea…
