You can't assume that lowering capital gains taxes will always do what you describe, and this is a perfect example of why supply side usually doesn't work. When you lower capital gains taxes people who were putting off selling things do so, and this can give a lift in overall tax receipts, but this is because of the pent up demand for selling. Once this demand is satisfied the tax receipts slow down. This tax cut may have caused the bubble and the subsequent bursting because people could make more from speculation. In an sense capital gains taxes restrain speculation but usually not productive parts of the economy.

It's also worth remembering that supply side economics is not an invention of the Republicans but of the liberals, or more precisely, the Labour Party types in Britain. Ot to be more precise again, it's really an invention of Keynes.

Keynes came up with the idea that running a deficit is good in recessions and helps to lift the economy. So the association is deficit = additional spending or tax cuts which increases economic growth.

This doesn't necessarily imply it will do this generally, but is meant to say it may do this when the economy is damaged or in recession. The idea is to give the economy a stimulant and then pay it back by running surpluses later. So the original idea was in terms of fixing the economy rather than that tax cuts always pay for themselves.

The idea that too much tax in some areas follows from that and is also not new. The Reaganites and mainly people like Stockman pushed the idea and this was experimented with under Reagan and failed miserably. You can argue about that bit but the facts were very clear statistically, just don't true bothering Hannity or Limbaugh with the facts of it.

One of the reasons it may not have worked very well as it was jumped on as an excuse to give tax cuts to Republican special interests, and these kinds of cuts have been long known not to give much stimulus. Of course Bush has found this out yet again.