How Starving Government Still Gets Fat

Tax cuts aren't enough. We need to reduce the size and scope of government.

Sarah Palin may hunt moose with a rifle, but when she's out for bigger game, she relies on an unorthodox approach to bring down her quarry: Deprive it of food. "Please, starve the beast!" she recently implored a Tea Party Express rally in Boston.

The critter in question is the federal government, which has been expanding like an oil spill in recent years. Palin's idea, a favorite among small-government advocates, is that the best way to shrink Washington is a permanent regimen of low taxes.

The theory is worth assessing as the president's debt commission grapples with ways to stop the gusher of red ink in Washington. It traces back to President Ronald Reagan.

"We can lecture our children about extravagance until we run out of voice and breath," he said in 1981. "Or we can cure their extravagance by simply reducing their allowance." With that in mind, he pushed through cuts in federal income tax rates.

What he neglected to consider is how much kids would curb their consumption if they could circumvent that restriction with Dad's credit card. Under Reagan, spending rose 22 percent (adjusted for inflation) and the government debt tripled. But Republicans have stuck to the strategy ever since.

When they began, this approach seemed worth a try. But 30 years later, confirmation is hard to find. Like Reagan, George W. Bush reduced income tax rates. In spite of that, inflation-adjusted federal outlays this year are 60 percent higher than they were the year Bush became president.

Advocates could write off this experience as a fluke or claim that without tax cuts, Big Government would be Ginormous Government. But new studies from economists at opposite ends of the political spectrum leave little doubt that even on half-rations, the beast never fails to feast.

The first documentation of this phenomenon came from the most unlikely source—William Niskanen, who chaired the president's Council of Economic Advisers under … Ronald Reagan. In 2006, he examined the evidence and mournfully admitted that "starve the beast just does not work."

Last year, University of California, Berkeley economists Christina Romer (now head of President Barack Obama's Council of Economic Advisers) and David Romer undertook an even more extensive review of the data and came to a similar conclusion.

"Following long-run tax cuts, government spending does not fall," they wrote in the Brookings Papers on Economic Activity. "Indeed, if anything, spending rises." In time, "tax cuts tend to lead to tax increases."

Tea partiers will not put much stock in the findings of scholars who hang out in notorious outposts of the counter-culture or in the Obama White House (assuming the two are not the same thing). They may find it harder to ignore University of Alabama political scientist Michael New, an adjunct scholar of the libertarian Cato Institute in Washington.

Writing in the Cato Journal, he reports that "federal expenditures grow faster when revenues are relatively low." Even nondefense discretionary spending—which excludes military costs and fast-growing entitlements—experiences a growth spurt when taxes are cut, according to New.

This really shouldn't be surprising. In the first place, cutting taxes doesn't deprive the government of funds as long as it can tap the credit markets on a vast scale. Locking up the ice cream does no good if there's an endless supply of burgers and fries.

In the second place, cutting taxes instead of spending is seductively pleasant. It lets citizens enjoy more government services at no extra cost on April 15.

Forced to pay for everything they get, right away, Americans would undoubtedly choose to make do with less. But given the opportunity to party now and pay later—or never, if the tab can be billed to the next generation—they find no compelling reason to do without.

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  • Untermensch||

    Which means we are well and truly screwed since, to borrow War on Drugs metaphors that actually work, most of the population is hooked on the heavy stuff and now can't imagine life without it...

  • Drax the Destroyer||

    Mensch, it's not just that they can't imagine living without it, but rather as a result of our glorious public funded educations, they do not even have the capacity to live without it.

  • jk||

    Anyone who calls Reagan a fiscal conservative must pay their mortgage with a credit card.

  • .||

    The last President and Congress to retire the debt was during Andrew Jackson's administration. Who are you blaming again?

  • Some Guy||

    Every President and Congress that didn't at least not raise the debt.

  • unPC||

    Huh?

    Some Guy, do you realize that was a double negative? Did you mean to say that every President and Congress who did "raise the debt"

    If so, you're blaming everyone since President "Silent Cal" Coolidge, Reagan's roll model.

    As for the Gipper, he did try to restrain the growth of spending in everything non-military. And his tax RATE cuts (the word is important) did not cause a reduction in tax revenues; quote the contrary.

  • jk||

    I'm not "blaming" anyone.
    I'm just pointing out that to be fiscally conservative one must cut taxes AND cut spending.
    Cutting taxes without cutting spending is not only not fiscally conservative, it is hypocritical, dishonest and irresponsible.

  • .||

    But you did mention Reagan by name, as if he were a libertarian hero.

  • jk||

    Reagan a libertarian hero? That's pretty funny.
    No, he's the patron saint of fiscal conservatives who pay their mortgage with a credit card.

  • Untermensch||

    Dot, did you read the some comment by jk as I did? That was hardly a laudatory comment about Reagan...

  • ||

    Well reasoned article. I agree with everything except the idea that the Tea Party crowd would listen to Mr. New, or anyone else that disagrees with them.

    I think you are assuming that they are thinking through the issues like you are. No, they are angry and that is all they need. Why think it through, they may find their ideas don't make sense.

  • ||

    Actually the TP well understands the problem is spending not taxes, as anyone would know if they got their information from anywhere but the MSM.

  • ||

    If Dick Armey and the Fox News wing of the MSM had started the Tea Party at the beginning of the Bush Administration, I might believe that, but they kept *real* quiet during those years of rabid spending increases, because after all, that was the politically sacrosanct military-industrial-complex spending, and Homeland Security scope expansion, and ok, also because Rove would have had them thrown in Gitmo for saying the emperor didn't have clothes on. Yeah, they picked up some Ron Paul supporters after they started up, and maybe they're starting to add some actual grassroots on top of their Astroturf beginnings, but they still haven't provided any reason for us to believe them, especially when too many of them loudly parrot whatever Sarah Palin or Glen Beck tells them to rant about.

    It's especially ridiculous when they go calling Obama a socialist. I live in the San Francisco area, we've got *real* socialists here, he's not one of them, and as much as he'd like to sell America's health care to different parts of the insurance industry than currently run it, he's nowhere as aggressive about expanding government power as Bush was. They need to undo the Bush/Cheney/Rove/Norquist expansions first, and it's too late to get back the money Obama spent bailing out the Republicans' Wall Street buddies.

  • TheOtherSomeGuy||

    With the oil spill mentioned in this article playing non-stop on cable and network news, best of luck convincing people they need less government...

  • .||

    Indeed, if we had had just a little more, that emergency blowout valve would have worked perfectly.

  • Drax the Destroyer||

    No, people just need less stupidity which is redundant when we mention government. Anybody remember the perfect storm of Katrina, shitty government built and maintained levies, and FEMA? Counting on them to handle any sort of disaster well is like counting on a paraplegic to parkour his way across a city.

    Oh sure, some sort of fictional regulation before (aided with 20/20 hindsight like all “good” government programs) this incident might have succeeded in preventing this one oil spill while costing us all more at the pump and the oil industry thousands of jobs while colluding the specious relationship with the government and industry further. I'm sure Oil executives would never bankroll congressional candidates "friendly" to their particular operations (and not others). No, never.

  • Mike||

    Nothing wrong with a little government intervention here, in the form of stepping in to clean up the oil. Defending the property rights of all those who own property around the Gulf from the spilled oil makes sense.

    But then BP must be made to bear the consequences of their failure to prevent and control this spill. The spill didn't just "happen". It's not an act of God.

    We don't need more regulation to *attempt* to prevent these sorts of "disasters" if those responsible are held accountable. If the bottom line is in serious danger, and the personal net worth of the corporate ownership are at risk, you can bet they will quickly learn to be a lot more careful with the chances they take.

  • TheOtherSomeGuy||

    Yeah, I'm sure BP has been planning on destroying its own multi-million dollar oil rig, losing all the profit on the spilled oil, and destroying its stock prices and reputation for years.

  • no one||

    If I remember what I heard on the Sunday talk shows, BP does pay for everything. In fact, the government could, at any moment, take over all clean up efforts and send the bill to BP. They don't because BP is doing a pretty good job, and has access to technology the government doesn't have on hand (e.g. underwater robots).

  • Kroneborge||

    The oil rig didn't actually belong to BP, it's a lease. And the lessor is going to have to eat the cost of that from what I hear (650m) still going to be far less than the cost of the spill (3-14b)

    From everthing I've read this was a top notch rig and crew. But deep water drilling is VERY tough. Accidents can and will happen.

  • Some Guy||

    "Starve the Beast" works on the assumption that deficit spending doesn't exist. What happened to spending after Bush's tax cuts? After every other tax cut in the last 50 years?

    I'd rather "Feel the pain." Force a balanced budget, and make everyone feel the cost for whatever it is the government is buying until they finally vote for someone who will stop doing it. It's the ONLY way we'll stop running up our grandchildren's credit cards.

  • ||

    ...and make everyone feel the cost...

    Didn't I read somewhere that 47% of American households pay no federal income tax?

  • Jimmy 'Crack' Corn||

    Yes, capture the 47% by applying a flat tax of 5% across the board to everyone in addition to the current taxes. No exemptions, period.

  • Some Guy||

    Or a VAT. I think that a VAT that automatically raises itself when spending raises would be wonderfully outrage creating. Imagine if you were a Congressman and knew that your constituents' "sales tax" would go up .5% if you passed some wasteful bill and be traceable right back to your actions. Wouldn't that give you plenty of pause?

    (Also if it makes you feel better, those "untaxed" households are still paying about 15% for SS & Medicare.)

  • EITC||

    Except that with the Earned Income Tax Credit most of them still don't actually pay anything in payroll taxes at the end of the day...

  • unPC||

    What you fellas don't seem to know is that most of the 47% are actually getting welfare checks from the IRS.

    The magic potion, which most American voters don't fully understand, is tax credits. If a lower-income worker earns $15K she owes zero% on the first $5K and 10% on the next $10K - in other words one thousand dollars in federal income tax. If her Earned Income Tax Credit and other tax credits (child tax credits, etc.) add up to five grand, she comes out ahead by $4,000. The IRS sends her $4K of what is basically welfare.

    Forget imposing a new tax on the poor, how 'bout we just say they can't come out ahead in their dealings with the IRS?

  • Chad||

    When they began, this approach seemed worth a try. But 30 years later, confirmation is hard to find. Like Reagan, George W. Bush reduced income tax rates. In spite of that, inflation-adjusted federal outlays this year are 60 percent higher than they were the year Bush became president.

    Misleading on two counts. First, spending as a fraction of GDP is more relevant. Second, you damned well know that a significant portion of the increased spending is directly due to the increases in utilization of various safety nets such as unemployment.

    We are spending ~25% of GDP on government, which is in fact on the low end of things. The problem is that we are only taxing ~16%, which is wildly low.

    You may as well get over these simple facts: the government will be running some or most of the health care system, and providing our core retirement. This alone will take almost all of the ~16% we are actually paying. We both need and must pay for other other stuff as well.

  • Mike||

    GDP is not relevant. Per capita numbers, however, would be.

    When you say "low"... you need to include a qualifier like "compared to". We are "low" compared to what you want? To other democracies? What?

    Finally, you state your "simple facts" as if they were a law of nature, rather than a group decision. You may be right. And in this case, the argument goes: if you want a smaller government, focus on spending because focusing on taxes doesn't work.

  • Punk||

    Leave Chad alone. He is simply lamenting the absence of pure collectivism. In his perfect world, you'd give all your money to the government and let them decide - in their unbiased benevolence - to allocate resources to all equally. After all, it's only fair.

  • West Texas Boy||

    In his perfect world, you'd give all your money to the government and let them decide - in their unbiased benevolence - to allocate resources to all equally.

    To be fair, that's the direction we're headed in, so 'ole Chad is on to something.

  • Drax the Destroyer||

    "The problem is that we are only taxing ~16%, which is wildly low."

    Is this some sort of average? Because I sure as shit am not paying only 16%. Maybe if that large mass of non tax-payers actually contributed instead of bilking all of us, we might be less hosed.

    "We both need and must pay for other other stuff as well."

    Whenever someone says that we need something I start getting nauseous. Let me guess, this "stuff" we "need" consists of green jobs, more shitty education, mandated 35 hour work weeks, the War on Drugs, the War on Terror, and subsidies, subsidies, subsidies. I know once you raise my taxes again, I'm going to need a subsidy.

  • The Libertarian Guy||

    I know once you raise my taxes again, I'm going to need a subsidy.

    That's the plan! Now, bend over and take your medication. Chad knows what's best for you, filthy capitalist pig-dog!

  • Chad||

    I am soooo horny right now!

  • Paul Krugman||

    I know... it's just so stimulating...

  • Barney Frank||

    Get a room, you two!

    Um... mind if I join in?

  • EJ||

    Chad, you need to look up those GDP/ spending numbers again. Federal spending as a percent of GDP since WWII has always been in the range of 18-22 percent. We are currently spending the highest percent of GDP on dpmestic expendatures in history even when you remove the stimulus and other temp spending, we are looking at about 24 percent. When you combine all levels of government, we are currently spending 41 percent of GDP.

  • economist||

    "Government...will be providing our core retirement"
    I sure as hell hope you're not talking about social security, because if you're under 30, it's going to be bankrupt when you retire.
    Shorter Chad:
    "Face it. Statist assholes like me have the power, so you should all learn to like it, kind of like how some prisoners learn to enjoy prison rape."

  • MNG||

    Where is the morning thread? Come on, some of us have work we would like to be avoiding.

  • ||

    LOL, I know that's true for me.

  • ||

    Pithy rather than pissy. I like early morning MNG.

  • Mad Max||

    I like big budgets and I cannot lie
    The other politicians can't deny . . .

  • jk||

    lmao!

  • West Texas Boy||

    This is actually a pretty cogent point that I've been thinking about myself, lately. The problem with spending isn't that the government has too much money on its hands from high taxes, the problem with spending is that politicians, being politicians, have thus far had unlimited capacity to borrow and continue to indulge their politician needs, regardless of revenues.

    The only way to fix this - to truly starve the beast - is to require a balanced budget over something like successive 3-5 year periods (with a few very explicit exceptions for pre-defined existential emergencies), and the only way to put any kind of practical constraints on Congress is by amending the Constitution. So, what we need here are the states and the people to stand up and propose a balanced budget amendment.

    A good first step would be for U.S. debt to get downgraded at some point and prove to the serious people - and the people who purport to be serious - that the cheap money bonanza can't roll on forever.

    I can certainly understand why certain politicians - and by extension entire state legislatures and their brain dead gimmee gimmee constituents - might be opposed to such an amendment, but in the interest of fairness and seriousness, those very same parties had best not ever label themselves as "anti-big government" which is most definitely what many of them do today.

  • West Texas Boy||

    I guess I should also add that the capacity to borrow also allows the redistributionists among us to concede the low-tax point in the present, secure in the knowledge that they can still just spend as much as the please towards their social designs and that someday they'll eventually get their way with higher taxes in the future when the debt grows too large. This is exactly the point we're approaching now.

    Any politician who runs as being "low tax" without simultaneously being "low spending" is playing right into this gameplan, whether he means to or not.

  • ||

    It is all in the execution. Like in sports, a coach and team may have the perfect game plan, but if the execution of it is poor, the results will be poor.

    Cutting taxes can be a good game plan component, not because it starves the beast, but because it can stimulate the economy. But above all, it lets the people that earned the money keep it and spend it how they desire, and typically, better than a government will.

    Cutting spending is the key to the game plan for all the reasons your article notes. In almost every case of tax-cutting, however, our government has executed poorly by compensating for the cuts with unwise approaches to recovering what was lost in the tax revenues.

    For example, in Reagan's quote about cutting the child's allowance, it cannot be denied as an effective method of stopping the child from spending foolishly. Unless, that is, you execute the plan poorly by allowing the child to have a credit card, as in your example, surely not something a wise parent is likely to do.

    The bottom line is, you need all the elements in place to get federal spending under control. You need a good game plan. You need a good coach to direct. You need the correct talent to execute the plan.

    Our problem, which some tea party supporters do understand, is we are lacking, if not all three, at least the last two criteria.

    A government starved can only continue to get fat if it does not have the desire and discipline to lose weight, while people enable it to continue midnight raids on the refrigerator.

  • Jono||

    Well you could starve the beast if you forced the government to balance its annual budget and took away its powers to issue debt.

  • ||

    Writing in the Cato Journal, he reports that "federal expenditures grow faster when revenues are relatively low." Even nondefense discretionary spending—which excludes military costs and fast-growing entitlements—experiences a growth spurt when taxes are cut, according to New.

    This really shouldn't be surprising.

    Correlation is not causation, Chapman. The above theory is not reality based. Allowing government fewer taxes does not CAUSE a burst of spending. The reality is, if you increase government revenues, that will set off a mad scramble to spend all that money and more.

    Think about it -- if you really think lower taxes reduces the rate of increase in government spending, then the obvious corollary would be that jacking up incoming revenues sky high would cause politicians to become fiscally more prudent, which is obviously, insanely non-reality-based if you've ever had the misfortune of watching politicians in action when they have a fresh infusion of cash.

  • Kroneborge||

    Actually, I think if you required a balanced budget, and ending up raising the taxes enough to meet the current level of services, pretty soon, you would have enough people pissed off that you could reduce spending and thus taxes.

    IMO, the key is spending, if you reduce that THEN you can cut taxes. Failing to do that first is irresponsible.

  • ||

    "But given the opportunity to party now and pay later—or never, if the tab can be billed to the next generation—they find no compelling reason to do without."

    And there you have it. People are greedy bastards, and if only they got what they deserved. Unfortunately, their children will get it instead.

  • ||

    Eliminate income tax withholding. THEN you will get tax reform.

  • West Texas Boy||

    I agree with this, but tax withholding is like a complication from the original disease, which is ravenous overspending by government.

    Eliminating tax withholding is evil and will be a necessary step to tax reform, yes, but the whole point here is the spending.

    I'll give you this: that they can still spend the money irrespective of tax revenue gives lie to the (most common) stated rationale that "government can't function without the regular revenue" from withholding.

    Withholding is not about the "regular revenue"... it's really about obfuscation and dodging accountability.

  • Ayn R. Key||

    As I like to explain to liberals, and also to conservatives, total taxes = total spending. The difference between liberals and conservatives is that one favors direct taxes and the other indirect taxes. Both favor more taxing and more spending.

  • Ernie the Bear||

    As an Alaskan, I think the fact that Sarah Palin can utter the words "starve the beast" without being immediately struck by lightning may be a good argument against the existence of God. The only other explanation is, He is giving her a pass because she doesn't actually know what the words mean. The babbling of a "special" child.

  • Constantly Offended Obamabot||

    That picture is racist! I'm not entirely sure how, but it's playing up sterertypes of black people!

  • ||

    Reading these comments is a pleasure. How could you imagine someone can put a big government on a thin budget, "starve it"? The government that runs several wars at a time and going to start another one... And who you think will tell the guys to cut spendings? This is all looks very childish. A big government will never submit to a request or recommendation from anybody who has no power to stop it. It's too late to teach it or advise it. It's already BIG. The sooner you all realize the necessity to get together and build that legitimate power, the better chances you'll have to win in 2010 and 2012.

  • Ivan||

    Who is John Galt?

  • unPC||

    Starve it?

    So if a 600 pound sumo wrestler eats two hole turkeys, ten pounds of potatoes, and wants three apple pies for desert; you're "starving" him by only letting him have two apple pies?

  • cost||

    Starving the beast only works if you take the printing press away from them. Whenever anyone wonders if they will repay loans, the answer is always yes because they can print money. Without the printing press, they will have to pay market rates, and keep the budget under control.

  • ||

    POLL: Americans want lower spending, not higher taxes
    The National Commission on Fiscal Responsibility launched last week, and the Commission members all expressed concern about the growing debt. Reaching agreement that our nation is on an unsustainable trajectory was always going to be the easy part. The real challenge is figuring out how to fix the problem.

    Commission members will receive recommendations from many economists and scholars. They should also listen to the American people. As a new poll from Rasmussen shows, the American people overwhelmingly want government to cut spending—not raise taxes—to reduce the debt.

    According to the survey, less than one in five voters is willing to pay more taxes to lower the federal budget deficit. That’s probably because two-thirds of Americans believe that the country is already over-taxed, and more than eight in ten believe that the federal deficit is the result of politicians overspending, not a lack of tax revenue.

    Americans are also skeptical that politicians will really pay down the debt if they get additional tax revenue. Rasmussen reports that 58 percent of voters think that even if the president and Congress raise taxes to reduce the deficit, Washington is more likely to spend the money on new government programs than to actual pay down the debt.

    Yet a majority of voters also expect that the fiscal commission will come out in favor of tax increases instead of spending cuts. And nearly 8 in 10 think Congress will take the Commission’s advice and raise taxes.

    As our new video highlights, just returning per capita government spending to the levels we had in the 1990s would eliminate the deficit in three years. The key to returning to fiscal security in this country is to cut government spending, not to raise taxes. Government spending depresses private investment, stunts job creation and hurts economic growth. Here’s hoping the Commission surprises us by actually listening to the American people and their policy preferences. After all, it is average Americans who bear the effects of Washington’s policies. The Commission members would be wise to remember that.

  • Robert Knisely||

    NO discussion of federal funding is even well begun until one has read Steve Tidrick's New Republic piece, "The Budget Inferno." See http://www.tidrick.com/The-Budget-Inferno.pdf

  • ||

    While walking home from high school one day, I starting thinking about taxes and revenue...and I realized on my own that increased taxes would lower revenue, while decreased taxes would increase it.

    When I heard that reasoning on the radio, asked my dad "who is this?" and upon learning it was Rush Limbaugh, I started listening to him, and that was when I became politically active.

    Since then, however, I have come to the conclusion that our taxes our way too high, and that any tax cut that results in increased revenue is too small. I have come to realize that, if we want smaller government (and I do!) we need to cut it in every way we can: we need to cut spending, and we need to cut government.

    Instead of "tax and spend" we need to "slash and burn".

  • Kim Chen||

    I agree that the spending needs to be reduced. There are a large number of Government officials who seem to have little or no purpose, and spend much of our money on doing nothing. They need to go to reduce the costs. There is always room for cuts and reducing spending, it just means something has to go.

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  • Athletic Shoes||

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