Cut Taxes and Spend

The beast still eats

From Milton Friedman to Ronald Reagan, fiscal conservatives have hoped tax cuts could keep government from overspending by denying it revenues—a theory dubbed “starving the beast.” A new study by University of California at Berkeley economists Christina D. Romer and David H. Romer, published by the National Bureau of Economic Research, indicates that the beast is thriving despite the tax cuts of the last three decades. Government spending seems to march on regardless of revenue or tax rates.

The economists studied the effects of four major legislated changes in U.S. tax rates and policy since World War II, choosing episodes where the “starve the beast” motivation was most conspicuous. After looking at the data every which way, with multiple regressions and time lags, and accounting for wars and military spending, they found that the one thing most clearly connected to tax cuts was not spending cuts but future tax increases.

“Although a tax cut leads to a sharp fall in revenues in the short run, it does not have any clear impact on revenues at horizons beyond about two years,” the economists write. “Between one-half and four-fifths of the tax cut is offset by legislated tax increases over the next several years.”
And spending cuts? “In no episode [of postwar American tax cuts] was there a discernible slowdown in spending following the tax cut,” the economists conclude. “Indeed, in all of the episodes, there was an acceleration of spending.” The beast finds its food, no matter what.

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

GET REASON MAGAZINE

Get Reason's print or digital edition before it’s posted online

  • Video Game Nation: How gaming is making America freer – and more fun.
  • Matt Welch: How the left turned against free speech.
  • Nothing Left to Cut? Congress can’t live within their means.
  • And much more.

SUBSCRIBE

advertisement