Friday, May 12, 2006

I recently wrote about how former Reagan official, Bruce Bartlett, has disavowed the starve-the-beast axiom. He wrote, "Most conservatives believe that the best way to downsize government is to take away its allowance, as Ronald Reagan once put it. In other words, tax cuts will lead to spending cuts. This is a theory I once subscribed to....Today, unfortunately, the evidence seems to point in exactly the opposite direction."

A recent article in the Washington Post confirms Bartlett's suspicion:
Everybody knows that the Reagan tax cuts did not actually cause spending to come down in the 1980s; most people have surely noticed that the Bush I and Clinton tax hikes were followed by spending constraint in the 1990s; and the Bush II tax cuts certainly have not stopped Congress from spending like a drunken sailor recently. But then the plural of anecdote is not data, and until the starve-the-beast theory is conclusively discredited, tax cutters won't stop hiding behind it.

Well, now it has been discredited. Rauch cites William Niskanen, an economist who worked in the Reagan White House and now chairs the Cato Institute. Niskanen has crunched the numbers between 1981 and 2005, testing for a relationship between tax cuts and government spending, and controlling for levels of unemployment, since these affect spending and taxes independently. Niskanen's result punctures his own party's dogma. Tax cuts are associated with increases in government spending. The best strategy for forcing cuts in government is actually to raise taxes.
Just consider the events of last week. On Monday the government reported that Medicare's trust fund would run out of cash in 2018, 12 years earlier than was estimated when Bush came to office. It further reported that Social Security's trust fund would run out in 2040....So what exactly did Bush do? He pressed Congress to extend his tax cuts....Right on cue, the Senate followed up its agreement to extend tax cuts with a $109 billion spending bill.
What do you know, another supposed GOP truism proven incorrect. It's to the point where if they say "go right" you'd be much better off hanging a left.

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