(FORTUNE Magazine) – Before George W. Bush became the Paul Bunyan of tax cutters, there was Ronald Reagan. And if we're looking for possible clues about what may be in store for us this time around, Reagan's $750 billion reduction of the marginal tax nearly 20 years ago isn't a bad place to start. In the early 1980s, you'll recall, the U.S. economy was an awful sight to behold--sluggish growth, high unemployment, and runaway inflation. Radical treatment was needed, and that's what we got in Reagan's tax cut. The supply-side argument went something like this: Cutting the top marginal tax rate would provide incentives for high-income earners, who pay the most in income taxes, to save, invest, and create all kinds of earnings. That in turn would stimulate the economy through higher productivity and investment. In fact, Reagan's economic team predicted that the impact would be so large that the economy could easily steam ahead at an average annual rate of 6%.

No such luck. The economy did grow, but at a more moderate pace of 3%, while inflation and unemployment came down. The problem was that growth wasn't fast enough to offset lost tax revenue, and the federal budget deficit ballooned. The upshot was rising interest rates, low national savings, and ever-increasing foreign debt in the form of the current-account deficit. But Reagan's plan had one indisputable benefit: The top marginal tax rate fell from a ridiculously high 70% to 28%. And that, as any economist will tell you, can do a world of good as far as incentives go.

Obviously today's economy is an entirely different creature from the one we had in the early 1980s. We're deep into a history-making boom and only just beginning to face the possibility of recession. Growth has slowed, but inflation is virtually nonexistent and unemployment is at record lows. National savings is in slightly better shape because of the federal budget surplus, but private savings remain abysmal. So what impact might the tax package have on the economy? President Bush has argued all along that tax cuts are necessary to boost savings and investment. And more recently we've been hearing that the tax cuts will give the flagging economy a much-needed kick.

The Bush tax cut was not originally designed to provide short-run stimulus. His plan is to phase in cuts over ten years, collapsing the five marginal tax rates to four, with the top rate dropping from 39.6% to 33%. "The structure of the tax cuts means it won't do much to fight a recession," says tax expert Joel Slemrod of the University of Michigan. The way to do that, Slemrod says, is to give the tax breaks to those most likely to spend the money immediately, typically those with lower incomes. Bush's cuts do the opposite. Political opponents calculate that 40% of the cuts will go to the wealthiest 1% of the population.

And what about the effect on savings and investment? It's a murkier picture. Quantifying the impact on private savings is challenging, but it's unlikely that a cut in the top marginal rate from 39.6% to 33% will have as much impact as the cut from 70% to 28%. What economists can be certain about, though, is that the cuts will reduce overall savings to some extent by reducing the government's budget surplus. Over time that may have the effect of raising interest rates. "To maintain national savings," says Princeton economist Alan Blinder, "for every $1 you reduce the surplus you need to increase private savings by the same amount--and that's difficult."

For individuals, what's not to like about tax cuts? It's money in your pocket. But as a nation you'd prefer to get something really good for your $1.6 trillion. And on that score, we'll just have to wait and see.