I hear this, or variations of the tax-cuts increase labor productivity and fuel economic growth claim, a lot:
The Bush ... June 2003 tax cuts ... are functioning precisely as promised... It’s one of the marvels of supply-side fiscal policy. ...[M]arginal tax-rate reductions augment the ratio of financial capital to labor capital, thus raising labor productivity and, in turn, accelerating growth.
But labor productivity over the last three years is estimated to be half of what is was in 2002 and 2003:
US productivity growth lowest for decade, by Chris Giles, Financial Times: The US economy last year recorded its lowest rate of labour productivity growth in more than a decade, with growth in output per hour worked falling behind the EU and Japan. The fall casts further doubt on the ability of the Federal Reserve to cut interest rates as the US economy slows.
Research to be published on Tuesday by the Conference Board ... shows that US labour productivity in the whole economy grew by 1.4 per cent in 2006 as slower economic growth was combined with a rapid rise in employment.
Gail Fosler, the chief economist of the Conference Board, told the Financial Times that the fall in productivity growth was unlikely to be cyclical... If weak productivity growth continues, she said, “even in a slow growth environment, the US economy will be performing close to its potential”, restricting the Fed’s ability to cut interest rates. ...
The US [experienced a] slowdown in whole economy productivity growth over the past three years - to a rate half that in 2002 and 2003...
Dean Baker also comments on the productivity slowdown.