“Starving the beast” didn’t work
And then Niskanen, looking over 25 years of budget data, noticed something about STB: It didn’t work. In fact, attempts to starve the beast by tax cuts seemed to lead to increased federal spending.
Niskanen looked at both spending and taxes as a percentage of GDP. On average, he found, if federal revenues declined by 1 percent, federal spending increased by 0.15 percent. When revenues rose, on the other hand, relative spending decreased. A further study in 2009 by another Cato economist, Michael New, came to the same conclusion after the gluttonous administration of George W. Bush. Under Bush and his mostly Republican Congress, new benefits like subsidized Medicare drugs and increased federal education spending followed on the heels of large tax cuts.
Niskanen’s explanation for the failure of STB was straightforward, a conjecture based on standard economics: When you cut the price of something, demand for it will increase. Lowering taxes without lowering benefits meant that taxpayers were getting the benefits at a discount. The government made up the true cost with borrowed dollars that future taxpayers would have to repay. There was a big difference, Niskanen said, between a kid on an allowance and the federal government: The government has a credit card with no debt limit…
Reagan, Friedman, and other early advocates of STB had counted on something that never materialized. They had assumed that as the debt piled up to finance annual bud- get deficits caused by free-flowing benefits, public outrage would force politicians to restrain spending without raising taxes. Yet we’ve had the deficits and the borrowing, in amounts that would have left Friedman and Reagan agog; what’s been missing is the outrage.
Blowback
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Laffer Curve. There is a lower end that reduces receipts to govzilla.
Let’s try it for once.
tom daschle concerned on November 17, 2012 at 9:25 PM
Well then that’s not starving the beast. It’s not that it didn’t work; it’s that it wasn’t tried.
ddrintn on November 17, 2012 at 9:25 PM
It didn’t work for Reagan: he forgot we had a fiat currency since Nixon.
You cannot ‘starve the beast’.
You must chop its tentacles off until you are back to the quivering core of a slug that we call ‘government’ and get it to do something worthwhile under threat of cutting its slimy entrails out.
ajacksonian on November 17, 2012 at 9:26 PM
They ain’t seen nothin’ yet.
The tighter they grasp, the more Midas Mulligans, Fransisco d’Anconias, Ellis Wayatts and Hank Reardons will slip from their fingers.
LegendHasIt on November 17, 2012 at 9:28 PM
You must have an electorate that is willing to cut off the goodies.
Revenant on November 17, 2012 at 9:29 PM
Starve the beast by refusing to raise the debt ceiling.
El_Terrible on November 17, 2012 at 9:30 PM
None of it matters since they are just printing money.
Tax and spend liberals became spend then tax liberals.
It won’t be long now.
forest on November 17, 2012 at 9:31 PM
How’s that been working for you, idealist?
gryphon202 on November 17, 2012 at 9:31 PM
ROFLMMFAO
We don’t. Nice try.
gryphon202 on November 17, 2012 at 9:32 PM
Starving the beast didn’t work when democrats got to the point their morals fell below caring.
Speakup on November 17, 2012 at 9:36 PM
Off the cliff we go!
Revenant on November 17, 2012 at 9:38 PM
What’s with the hyphens? Man, that article was terri-bly difficult to read.
keep the change on November 17, 2012 at 9:50 PM
The presumed ability to cut taxes creates a false sense of security, which in turn disarms any opposition to increased spending. It wouldn’t surprise me if, on average, private individuals enjoying a personal tax cut also outspent their personal means. Moreover, as long as the public feels no palpable pain, it will scarcely be outraged over comparative abstractions.
I’m not sure about the claimed general correlation between tax cuts and diminished revenue since there are points on the fiscal continuum where cutting taxes brings in more revenue. But it does seem intuitive that cutting taxes and increased expectations might be correlated. A society that imagines itself rich enough to dispense with taxes may well imagine that it can afford to dispense unlimited benefits.
The idea that cutting taxes might be the right medicine for a poor country does not seem to have percolated, perhaps because borrowed money makes Americans feel richer than they really are.
Seth Halpern on November 17, 2012 at 9:51 PM
Weeeeeeeeeeeeeeeeeeeeeeeeeee!!!!!!!!!!!!!!
BallisticBob on November 17, 2012 at 9:51 PM
Tell me again why we have two parties?
rndmusrnm on November 17, 2012 at 9:53 PM
Do everything but practice Capitalism, and it fails = Capitalism doesn’t work!
Do everything by starve the beast, and it fails = Starving the Beast doesn’t work!
Sensing a pattern.
Left Coast Right Mind on November 17, 2012 at 9:54 PM
Don’t starve it – kill it, gut it, skin it, and hang it out to dry.
If it’s alive, some bastard will want to feed it.
OldEnglish on November 17, 2012 at 9:55 PM
Exactly! But there just aren’t enough congressmen willing to torpedo their cushy Georgetown lifestyles to do that,… yet.
elfman on November 17, 2012 at 9:59 PM
Indeed, just the beginning. Jan. and thereafter will be ‘fun’.
Schadenfreude on November 17, 2012 at 10:11 PM
Most all politicians can go straight to Hades, from all sides.
Schadenfreude on November 17, 2012 at 10:12 PM
“Starving the beast” via tax cuts didn’t actually starve the beast. Shortly after the capital-gains tax rate was dropped from 28% to 20% in Clinton’s second term, revenue poured in. And after we recovered from 9/11 and the Bush cuts took hold, even more revenue poured in.
It’s hilarious to watch liberal morons look back, simply apply a higher tax rate to taxable income that was generated under a different tax environment and scream, “Look at how much money the tax cuts ‘cost’ us.”
Hey, economic shiteheads. There wouldn’t be the same amount of taxable income because people would have changed their economic behavior.
BuckeyeSam on November 17, 2012 at 10:15 PM
You should have been here addressing the lies that justthefacts was advancing.
tom daschle concerned on November 17, 2012 at 10:32 PM
It was never starved, no one was willing to limit the growth of our debt.
astonerii on November 17, 2012 at 11:10 PM
This article is completely wrong-headed BS!!!
First, it uses the phony Washington DC meaning for “cuts”!!! That error alone invalidates everything which follows.
The fact is that total revenue went UP as a result of what Washington calls “tax cuts”…but are more properly called “tax rate reductions”. This is hardly “Starving The Beast”: it is “FEEDING the Beast”. “Starving” can only occur when revenue is actually REDUCED!!!
Many states have laws which do not allow tax rate adjustments to increase revenue without a vote of the people: any excess revenue collected MUST be refunded. This guards against government growth “on autopilot”…and (for the most part) IT WORKS!!! A federal provision mirroring this concept would truly allow us to STARVE the beast.
There are many other proven ways to accomplish this: Mandate “zero baseline budgeting” for every department each and every year. All government functions should be examined AT LEAST once every year, reviewed for effectiveness and Constitutionality, and ONLY THEN re-authorized. ABSOLUTELY NO FUNDS should ever be used for automatic budget increases. Government head count should be capped to a certain percentage of the population: NO EXCEPTIONS without an explicit vote of the people.
And there should be NO BORROWING without an explicit vote of the people each and every year!!! It’s obvious that we can’t trust the irresponsible Washington kiddies with a credit card.
landlines on November 17, 2012 at 11:12 PM
Let.it.burn… Then we’ll see the beast starve. Wait, no we won’t. They’ll just print more. Ugh.
LtGenRob on November 17, 2012 at 11:16 PM
May all the politicians and the media who call taxes “revenue” spontaneously combust.
Schadenfreude on November 17, 2012 at 11:40 PM
Cutting taxes won’t reduce the size of the federal government. The reason for this, is because cutting spending would be a rational response to a phenomenon that is driven by emotion rather than reason.
The rational behind increased spending, is always that it is there to help. To help the poor, to help the down trodden, to help the middle class, etc etc, and so on and so forth. The individuals who vote on these arguments are not moved by the simple fact that we don’t have the money, that the spending is ineffective or counter intuitive. They want to feel like they’re doing something, so they vote for the spending, even if they think its ultimately futile.
Spending decreases, during periods of great prosperity. When unemployment drops from six, to four points, people aren’t moved by arguments of helping the downtrodden. The economy is so great right now, who could possibly be downtrodden in this economy, they’re practically kidnapping people to fill positions!
The selling point of increased spending loses most of its effectiveness under these conditions.
That’s not the only factor at work though. During periods of great prosperity, families move out of the lower class and into the middle income bracket, middle class families start graduating into the higher income brackets. People earn more money, feel less of a need for help, and start paying more taxes. The later, is very important. When you do not, pay taxes, calling for lower taxes makes no sense to you.
It’s for this reason that I’d like the Republican Party to become an unrepentant champion for aggressive growth and ample freedom. Republicans in the early 00′s were only moderately pro growth, due to both concerns about the environment, and more importantly because they let corporate benefactors dictate much of their policies. The largest companies are often ambivalent towards growth, since they’re already huge. In many cases they’d rather see laws that helped preserve their positions. Sometimes they would even actively lobby against growth, to prevent any new competitors from arriving.
They were better than the democrats are now at least, but it was an unwise strategy to say the least. Whenever we are in power we should be aggressive moving as many people into the middle class as possible. This is probably the most sure fire way to open up opportunities within minority blocks in the long term.
May take time, but if they’re just as successful as anybody else, then they aren’t going to be nearly as susceptible to class warfare.
WolvenOne on November 17, 2012 at 11:50 PM
There’s his problem. He’s equating tax rates with revenues.
The Rogue Tomato on November 18, 2012 at 12:13 AM
I guess the writer missed that whole tea party thing. when the outrage occurred the political elite instead of listening and responding to that outrage and the fact their co-congresspeople were voted out in record numbers decided to have an all-out attack on those that are outraged.
so STB worked. It worked as intended but like everything else in DC the politicians failed to use the outrqage to enact changes. The GOP leadership caved and attacked those outraged instead of flaming that outrage into a tidal wave of election victories in 2012
unseen on November 18, 2012 at 8:13 AM
Cutting taxes leads to growth in revs to the government because it increases economic growth causing more taxpayers to be born. However the government during this time of increasing rev always covers their increasing spending and makes it look like tax cuts decrease rev. Bush’s tax cuts increased rev by almost a trillion dollars. However the politiicians increased spending by about 1.5 trillion.
this entire article is the gop elites attempt to prep the coming battlefield for when they cave on tax hikes in the near future.
unseen on November 18, 2012 at 8:21 AM
The Federal Government will just deem the debt ceiling irrelevant.
After all, the country hasn’t had a budget for 3 years – why should anyone care about the debt ceiling?
CorporatePiggy on November 18, 2012 at 8:48 AM
I propose that the correlation is actually due to the reverse causation: reducing spending increases revenue, while increasing spending decreases revenue. It’s simple once you understand that spending reduces economic output, not increasing it as the dogma has claimed for most of a century.
Count to 10 on November 18, 2012 at 9:28 AM
“Starving the beast” by cutting taxes doesn’t work because the resultant increase in economic activity increases government revenue even with lower rates. Increasing revenue was one of Reagan’s arguments in favor of tax cuts, and he was right. Both his and Kennedy’s tax cuts increased revenue to the Treasury. Congress then used the increased revenue to justify more spending and went on a spending spree that far exceeded the new revenue.
Does anyone think that giving the PelosiReidObama axis of evil more money will be any different?
With tax increases the $20 trillion debt estimate is a lowball figure..
single stack on November 18, 2012 at 9:38 AM
It will starve eventually once it’s eaten up every productive member of society.
We saw this happen in the former USSR.
IT will eat up & spit out & mangle anything & anyone in its way.
There’s no stopping this anymore.
The free loading part of the electorate coupled with sophisticated cheating & do gooder communists etc has given us all of this.
There’s no turning back.
I’ll fight, but my heart is not in it enough right now.
Badger40 on November 18, 2012 at 10:57 AM
It’s more complicated than that. depends if the gov is running in the black or red when the spending occurrs among other things but I agree since the depression increasing federal spending has decreased overall private sector economic output.
unseen on November 18, 2012 at 11:06 AM
Not really. It does not matter if the government is running in the red or black when it does it. The fact that the government has taken the money is evidence enough that it is slowing growth.
The problem with government spending is that there is no greater than 1:1 spending the government ever makes. The money when taken out of the economy automatically causes a decrease in that money’s multiplier which is almost always higher than any potential multiplier than the government could create spending it.
Money being spent in reasonable deficit spending can have a temporary increase in GDP, but when it is finally pulled from the economy to do nothing more than pay a debt, it has a much more drastic negative impact.
There is no single spending program where the government creates wealth greater than the value of the money being spent.
astonerii on November 18, 2012 at 11:11 AM