William Niskanen on Cutting Taxes and Shrinking Big Government

Reason's 1978 interview with the late libertarian economist

November 23, 2011

Editor's Note: This interview originally appeared in the November 1978 issue of Reason.

With a background in economics and political studies and experience in the university, the think tank, the government, and the corporation, William Niskanen brings varied skills and insights to the tax-cutting movement. He has been involved in the effort to reduce taxes since 1972, when he helped to draft the unsuccessful Proposition 1 in California. More recently, he has been instrumental in designing the Michigan tax-limitation measure, which will be on the ballot in that state in November, probably along with competing tax-reduction proposals. And now he is working with the National Tax Limitation Committee to draw up a constitutional amendment limiting federal taxation.

Mr. Niskanen moved from an undergraduate education at Harvard to the University of Chicago, where he earned master's and doctorate degrees in economics. He has worked for the Rand Corporation and the Institute for Defense Analysis as well as for the government, in the Defense Department and the Office of Management and Budget. He taught for several years at the Graduate School of Public Policy at the University of California at Berkeley and is the author of Representative Government and Bureaucracy. Since July 1975 he has been chief economist for a major U.S. corporation.

At a recent conference in Virginia at which Mr. Niskanen was a featured speaker, Senior Editor Tibor Machan heard of Niskanen's recent efforts in the tax-cutting department. Along with conference participant Lester Hunt, he took Niskanen aside for some of his thoughts on taxes and governments.

REASON: Would you tell us a little bit about the specifics of this bill or document you are working on?

NISKANEN: We have just formed a committee to draft one or more versions of a national tax-limitation amendment to the US Constitution. Several of us have our own recommended versions that we bring to this committee, but the committee has yet to resolve the specific language of the versions that it will endorse. Bob Bork, who was formerly solicitor general of the United States and is now a professor of law at Yale, is the chairman of tis drafting committee, and we expect to have one or more versions of such an amendment ready by the end of September.

REASON: There are some other people who are probably known to our readers who are part of this effort.

NISKANEN: Yes, the group includes Milton Friedman, formerly at the University of Chicago and now connected with the Hoover Institution; Walter Williams of Temple University; James Buchanan of the Virginia Polytechnic Institute; and a number of members of the original group associated directly with the National Tax Limitation Committee--Lewis Uhler of California, Professor Craig Stubblebine of the Claremont Colleges.

REASON: Is there any connection with the Jarvis-Gann movement that brought about Proposition 13 in California?

NISKANEN: There's no organizational connection. Several members of our group, most importantly Mr. Friedman, strongly supported the Jarvis-Gann initiative, but that came from a different group and is addressed to a quite different problem than the issue to which a general tax-limitation amendment is addressed. Jarvis-Gann is not a general tax limitation. It limits specific tax rates but does not limit overall taxation, even within the state of California.

REASON: Is it pretty clear that, whatever document emerges from your effort, it will be a tax-limitation provision and not like the one in California?

NISKANEN: We would not attempt to limit any specific tax rate. It would be a general limitation on the total taxing plus borrowing by the federal government. Now the issue as to whether that would be limited in terms of some constant share of the total income in the United States or some formula that would lead to a declining share over time is not yet resolved.

REASON: What do you think are the major and popular objections to this effort--that is, what do you anticipate would be some of the most important political obstacles for you to overcome?

NISKANEN: Well, there are two obvious sources of opposition to the idea of the tax-limitation amendment. One is by the fairly large group of people who want government spending to increase. The other group of people, who may have no strong preferences for outcomes in the sense of either larger government or smaller government, believe that it is inappropriate to constrain elected representatives in this particular manner. They feel that the selection of representatives is the proper basis for electoral or voter control over government.

The primary reason why we believe that the tax-limitation amendment ought to be added to the Constitution is much the same reason as for any other amendment--certain features of the government should not be subject to decisionmaking by the body of elected representatives. The whole spirit of the tax-limitation movement is not necessarily to reduce government or to increase it or whatever but to shift one important decision from elected representatives to the people--and that is the share of their income that they are prepared to have government allocate--and to leave to government the entire responsibility for determining the composition of spending and the setting of individual tax rates. The amendments that we have drafted in California and Michigan and that we will be drafting for consideration as a national amendment in no case have constrained the authority of governments to determine how much money goes to particular purposes or groups within the total budget, nor have they constrained any specific tax rate. It leaves those questions of detail to legislatures, where the process of vote trading, or logrolling, is an important feature in assuring effective representation of minority interests. Buut on the question of the budget within which the political officials are operating, we feel that that decision should be made by the electorate themselves and not by the elected representatives.

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There is no "we"|11.23.11 @ 4:56PM|#

There should be no caps on taxes; quite the opposite. There should be a mandatory minimum that taxes have to cover at least 99% of spending. That is the only rule that would actually keep spending under control.

It's deficit spending that allows government to grow. Deficits are back-door taxation, and all the small-government types who thought they could "starve the beast" when the beast has a no-limit credit line and can print its own money got duped, and duped bad.

Doktor Kapitalism|11.23.11 @ 5:37PM|#

I have trouble imagining that that sort of rule would work, either. If Gillispie and Rugy are correct, then revenues will usually remain about 20% of GDP. If Congress can't tax up to the 40% they need, they'll probably scrap the program rather than cut the spending down to size. Even if it's a Constitutional Amendment (which would be unlikely to pass), then states desperate for Federal funds (especially hogs like Alaska) would quickly get it undone.

|11.23.11 @ 10:03PM|#

What a great idea!!
Raise taxes enough to cover our spending for the previous year. That would mean a 42% increase next year. I believe that would work great. Wow! was I just dreaming? Man-government/politicians SUCK!! No one gives a shit about the country, eff-it.

Vake|11.24.11 @ 6:47AM|#

And somehow Brad Delong gets to keep living.

|11.23.11 @ 7:49PM|#

one of the great figures in the libertarian movement

Three comments. Heh.

anarch|11.23.11 @ 10:36PM|#

Hard to compete with the post above it.

░|11.24.11 @ 9:29AM|#

Yup. Another black eye for "libertarianism."

Tem|11.28.11 @ 10:04PM|#

925 Silver Jewelry

|11.24.11 @ 8:30AM|#

thats liek the craziest thing I have heard all day dude.

www.anon-surfing.tk

|11.24.11 @ 11:43AM|#

Sad news.
He was generous enough to come to Cincinnati and speak to a relatively small group of like-minded folks. Quite the dignified occasion.

Traci (Traci) Lords|11.24.11 @ 8:10PM|#

I feel your pain.

abercrombie Milano |11.25.11 @ 3:31AM|#

What a fun pattern! It’s great to hear from you and see what you’ve sent up to. All of the projects look great! You make it so simple to this. ThanksHOHO9090@163.Com

two-way solenoid valve|11.30.11 @ 4:07AM|#

I am glad to talk with you and you give me great help! Thanks for that,I am wonderring if I can contact you via email when I meet problems.

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