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"Starving the beast" doesn't work

Posted by Christopher Shea  May 5, 2010 01:50 PM

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"Starving the beast" is a phrase that emerged during the Reagan administration to describe the strategy of cutting taxes in the absence of program cuts: The idea was that with less money to play with, Congress would of necessity curb big government. Politically, the strategy had the advantage of providing the sugar first and the medicine second.

Budget deficits rose sharply under President Reagan, but that did not dent the attractiveness of the basic idea, at least on the right. William Niskanen, however, a former member of Reagan's Council of Economic Advisers, cast empirical doubt on starve-the-beast's practical value in a 2006 paper, in Cato Journal. From 1981 to 2005, Niskanen found, there was no evidence that cutting taxes had led to budget cuts. If anything, he added they had consistently led to spending increases. (To explain this, Niskanen theorized that tax cuts in the absence of spending cuts made spending seem painless.)

True, the study left some wiggle room: Could starving the beast have an effect on discretionary spending but not on entitlements or military costs, which have unique drivers (demographics, foreign hostility)?

In a follow-up study, again in Cato Journal, Michael J. New, an assistant professor of political science at the University of Alabama, bolsters Niskanen's thesis. First, he replicates it. Then, to test its strength over time as well as to carve out the two Iraq wars, he homes in on the periods 1981 to 1990 and 1993 to 2000. New also looks specifically at discretionary spending. In each case, New finds, as Niskanen did, that tax cuts tend to lead to more, not less, federal spending. He writes: "[I]ndividuals seeking to effectively limit the growth of government should give serious consideration to alternative strategies."

Via Todd Zywicki
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