Well Kain,
Although your assertions about deficit spending are pretty accurate w/r/t this poll, your tax-phobic statements should be qualified.
There is little to no evidence that overall levels of taxation have any correlation to productivity. However, this is not a very precise way of testing the traditional supply-side theories you support.
If one were to isolate income tax, as well as other capital-oriented taxes like corporate taxes and inheritance taxes, then yes, you would find more support for your ideology. However, the bulk of reseach in this area is averaged and estimated over 5 yr periods. Longer than that, and the correlation of tax level and productivity tends to get lost in the statistical "noise."
Trying to separate that force from other forces, many recent researchers have tried to isolate other variables, such as government spending, surplus, etc. In doing so, they have been able to extend the supply-side benifits to extend their positive effects indefinitely, or at least as long as they wished to estimate. However, they also found that there was an equal, and opposite force that pushed in the opposite direction.
Namely, government expenditure on capital. In fact, they a few studies have found that the productivity benifits of government expenditure on human capital (health care, education, telecommunications, etc) can cancel out the productivity losses generated by savings-inhibiting taxes. The magnitude of this effect begins to approach the magnitude of the negative taxation force at around the 10 year mark. And in fact, one study I've read suggested that the positive effects of gov't expenditure on productivity can far surpass the negative effects of taxation by the 20 year mark. In fact, it suggested that the optimal marginal rate of taxation could be as high as 60%.
Now, this research is still in it's virginal state. In fact, the basic theoretical structure was only published in 1990. None of this is enough on which to base a policy recommendation. The research is still too new. Also, it doesn't rebut the criticism of the traditional supply-sider's view of the tax structure. Those negative effects do exist. If taxation can be shifted (in a renvenue neutral way) off savings and onto consumption, it is likely that there would be significant productive gains. It is, however, enough to punch a hole in the invulnerability of the tax-cutter's armour. I think that these studies cast doubt on the absolutist claims that tax cuts will always benefit the long-term growth of the economy.
In other words, the decision must be made politically. There are options. It can't be dictated by economic "facts."
It seems that Lucas's "free lunch" has a bill to pay at the end after all.
The pendulum is swinging back, my friend.
But I don't think the answer is different whether you answer for investing or the US economy. You have to think long-term, but act short term. The US should implement the old "increase your 401(k)" approach. Every year, whatever "raise" the US gets in increased revenues should be applied to the deficit. No budget increases. You got by fine last year, you'll do fine this year. 10-12 years, deficit gone. By default, you become more efficient in your spending and savings habits.
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