Network News

X My Profile
View More Activity

Bartlett on Kyl: 'More starve the beast nonsense'

The most fiscally responsible interpretation of Jon Kyl's resistance to offsetting tax cuts is that he believes in "starve-the-beast" economics: If you cut taxes, that will mean less in revenue, which will mean government subsequently cuts spending and shrinks. Bruce Bartlett, one of the original supply-siders and one of the authors of the Kemp-Roth tax cuts, calls this"nonsense":

Starve the beast theory has been the subject of much recent academic research, all of it showing that there is no truth to it whatsoever. Indeed, the literature shows that the effect is actually perverse; leading to higher spending because the tax-cost is reduced by tax cuts. I provide links to a number of recent academic studies on this point in my Fiscal Times post today.

I'll just add that Ronald Reagan and George W. Bush both cut taxes, and government -- alongside deficits -- grew. Bill Clinton raised taxes, and government -- and deficits -- shrank.

By Ezra Klein  |  July 14, 2010; 10:00 AM ET
 
Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati   Google Buzz   Previous: Tom Toles is worth a thousand words
Next: A public option -- and an employer mandate -- are working in San Francisco

Comments

Bill Clinton raised taxes, and government -- and deficits -- shrank.

Bill Clinton "the era of big gov't is over"

D's couldn't get the votes for increased spending

R's couldn't get the votes for tax cuts


Posted by: halbittinger | July 14, 2010 10:33 AM | Report abuse

So, unlike the various states, if the federal government isn't given money to spend, the federal government simply appropriates it. Certainly a study wasn't needed to underscore that fact -- but it doesn't seem to refute Kyl's point that the government has no money of its own; rather, it solidifies the point that a dollar spent by the federal government is one less dollar freely spent by a citizen.

In the most recent work Klein cites above, we read that "Overall, tax reductions might well be good politics or good policy. However, the evidence presented in both Niskanen’s study and this study indicate that revenue reductions, by themselves, are not an effective mechanism for limiting expenditure growth." Since denying revenue to the federal government is insufficient to shrink the federal government, there is agreement, supported by fact, that additional government-shrinking techniques are necessary.

The agreement is heartwarming! Continuing to read the cited works, we see that "annual spending on entitlement programs such as Medicare, Medicaid, and Social Security is partly a function of demographics..." The cancerous entitlement programs -- particularly Medicaid, Welfare, etc. -- must also be cut, just as the Deficit Commission noted late last week.

It's awesome that we're all agreed that entitlement cuts are necessary to augment the government-shrinking effects of tax cuts. Now let's get 'er done!

Posted by: rmgregory | July 14, 2010 10:41 AM | Report abuse

Hopefully we are heading in the same direction as the Clinton years, where a Democratic President will keep us out of further foreign entanglements and a Republican congress will freeze spending. That split seems like it worked pretty well, until the Republicans became scandal/impeachment obsessed.

Of course, maybe the Administration should be investigating Congress more:
http://www.politico.com/news/stories/0710/39637.html

Posted by: staticvars | July 14, 2010 10:41 AM | Report abuse

When taxes are tied to spending, new spending comes with a high political price, because someone has to be taxed for it. When tax-cutting is the only function of government, government spending becomes "free"-- after all, the spending helps someone, and people love tax cuts, so politicians will just spend whatever they want. Do you think that Medicare Part D would have passed if there was a tax increase that funded it? Of course not.

*It's awesome that we're all agreed that entitlement cuts are necessary to augment the government-shrinking effects of tax cuts.*

It's kind of funny that people are now openly saying that the purpose of relentless tax cuts on the rich was just a means of eventually starving the old and dismantling the safety net. Things like SS, Medicare, and Medicaid are core functions of government and things that prevent destitution and maintain the existence of the middle class.

Posted by: constans | July 14, 2010 11:01 AM | Report abuse

Credit where credit is due: George H.W. Bush also raised taxes in order to cut the deficit, laying the groundwork for Clinton's policies. In fact, he sort of sacrificed his presidency to do so.

More shockingly: he took responsibility for the Reagan-era policies that increased the deficit, and reached across the aisle towards the Democrat-controlled Congress. History will look kindly upon his presidency in light of his son's disaster.

Posted by: NicholasLeCompte | July 14, 2010 11:13 AM | Report abuse

Are you right-wingers insane? Bush didn't just do tax cuts. He passed a $550 BILLION healthcare expansion, all of which went straight to the deficit! He put two major wars on the nation's credit card! All of this enabled by a Republican Congress!

Republicans are fiscally irresponsible. They are profligate. They tax cut and spend.

It's terrifying that Bruce Bartlett is a voice of reason. Seriously, what the hell is wrong with the Republican party? Is it your GOAL to turn this country into a Banana Republic?

Posted by: theorajones1 | July 14, 2010 11:24 AM | Report abuse

The public debate between austerity measures versus monetary expansion is well underway. However, the default option is underdiscussed in the public domain. What about a default on the national debt? I have outlined some potential advantages here:

http://wjmc.blogspot.com/2010/07/what-about-default-option.html

I am seeking specific comments with numbers regarding the advantages and disadvantages of a Federal default on the national debt, so you comments are most welcome under the link above, thank you in advance...

Posted by: mckibbinusa | July 14, 2010 11:27 AM | Report abuse

Why isn't it clear that any tax cuts now inevitably mean tax raises in the future? The baby boomer generation has benefited from the lowest tax rates in American history, and their children (me) are going to have to suffer from higher taxes to pay for their retirement benefits.

The problem is that these people are running the government, and our generation is going to have to clean up their mess.

Posted by: mschol17 | July 14, 2010 11:29 AM | Report abuse

mschol: Because tax cuts now don't necessarily mean tax increases later ON THE SAME PEOPLE. In addition to the generational issue you raise, the GOP wants to cut taxes on the rich again and increase taxes on the middle and working class and cut the programs that help them.

Posted by: Mimikatz | July 14, 2010 12:02 PM | Report abuse

mckibbinusa,

"I am seeking specific comments with numbers regarding the advantages and disadvantages of a Federal default on the national debt, so you comments are most welcome under the link above, thank you in advance..."

The disadvantages would be numerous:

1. Banks hold hundreds of billions of treasury securities. Between treaesury default, subsequent loan losses and the inability to raise new capital via high risk premiums, many banks fail. As depositors realize FDIC isn't able to save their deposits, bank runs take down healthy banks, including (especially) small ones, which are undiversified and could be brought down by the default of a few of their larger loans. Firms which depend on banks for financing are extremely stressed. Savings in the form of bank deposits, bonds and stocks are virtually wiped out overnight.
2. Market rates that are based on treasuries go haywire - most adjustable rate mortgages default on spiking rates combined with deflationary depression. For that matter, most fixed rate mortgages default on unemployment and deflation. Homelessness and squatting soar.
3. Combination of treasury defaults and losses on other assets hurt/destroy insurance companies, so homeowners and carowners suddenly lose insurance.
4. Pension funds and 401ks are reduced to almost nothing, putting many older people into poverty.
5. We will have angered foreign creditors to the tune of $3+ billion and put their economies into depression - and be unable to raise significant funds to provide for our collective defense. Foreign nations could therefore impose their will on us at gunpoint, as we have done in our past to others.
6. The trade deficit might improve, but we will be far poorer - not necessarily a good trade. In the long run, exports must equal imports and in any case we benefit most from imports and the competition and choice they bring. Also, foreign nations we just screwed might refuse to trade with us out of spite.
7. Taxes will need to rise due to lower GDP and the inability to borrow, or programs like Social Security and/or Medicare will be shutdown.
8. State and local governments will go bankrupt, and even lower wages won't be able to keep schools and police stations operating.
9. Unemployment and homelessness soar, leading to riots, protests and, as a result of political and economic failure, a risk of violent revolution.
10. Washington will retain the power to tax, and could still well dispense favors to the connected and powerful.
11. Banks are not likely to take the limited purpose banking approach in a free market - more likely they will be fractional reserve as profits tend to be higher.

Posted by: justin84 | July 14, 2010 12:39 PM | Report abuse

Ezra, I'm not sure I buy that "starve the beast" is proven nonsense as far as political philosophy/goal goes. I think the "beast" is not government as a whole, but rather those scary socialistic entitlement programs, which some in the GOP would like nothing better to do than quash. Maybe Medicare Part D was an exception to the rule because the public was clamoring for a prescription drug benefit. But, it's easy to make a case for slashing welfare programs when (a) cash is somewhat scarcer and (b) you can make up stories about welfare queens and their Cadillacs.

"Starve the beast" doesn't apply, however, to defense spending (which is hard to cut, and easy to sell under the banner of "national security" whether it's "Star Wars" or the Iraq War). Do you think the GOP (or Ben Nelson) would be ranting about deficit spending if there was some new Stealth Bomber the U.S. wanted in an emergency? I somehow think there'd be enough votes for cloture.

Let's not mince words, the primary goal of tax cuts is to help the wealthy become even wealthier. Feed the public some B/S about "trickle down econ" and "tax and spend liberals" and you've made the sale. But, the added bonus comes from the inevitable shortage on revenue. So, maybe "starve the beast" is a "bonus" and not an outright "goal," but I can't help but think there are plenty of people out there who are enjoying seeing entitlement spending on the chopping block.

Posted by: pbasso_khan | July 14, 2010 1:54 PM | Report abuse

We have to stop talking about the deficit. It is NOT the relevant measurement of government intrusion into the economy. The level of government spending as a percentage of GDP is the MOST important measurement. Whether or not the government spends $4T with a $1T deficit or $4T with a $1T surplus is irrelevant.

The relevant point is that government spent $4T of hardworking taxpayer’s money. The fact that Obama’s healthcare plan is “deficit neutral” is also irrelevant. The fact is that $1T in new taxes over the next 10 years will be required to fund this program in the BEST CAST scenario.

The deficit is a distraction used by both parties. Let’s start talking about the overall burden of government on taxpayers as measured against GDP.

Posted by: kingstu01 | July 14, 2010 4:52 PM | Report abuse


I don't want to hear failed republican policies that have led us into this economic mess we have today. With the top 1% earning almost 25% of income, the middle class disappearing, its time for the big boys to start paying their share! Social security can be saved just by lifting the cap on wages , the more you make, the more you pay. Republicans do not want to continue unemployment benefits, but we are paying farmers in Afganistan not to grow poppies? Real wages have declined under the republican policies, the elite have the money and politcal power, politicians are bought and paid for by the system!

Posted by: roosboys | July 15, 2010 1:08 AM | Report abuse


I don't want to hear failed republican policies that have led us into this economic mess we have today. With the top 1% earning almost 25% of income, the middle class disappearing, its time for the big boys to start paying their share! Social security can be saved just by lifting the cap on wages , the more you make, the more you pay. Republicans do not want to continue unemployment benefits, but we are paying farmers in Afganistan not to grow poppies? Real wages have declined under the republican policies, the elite have the money and politcal power, politicians are bought and paid for by the system!

Posted by: roosboys | July 15, 2010 1:09 AM | Report abuse

Social Security has not contributed one dime to the deficit. It's true there have been 11 times in the past (the last one before 2010 being 1983) that it has paid out more than it received, but for the most part it has brought in more than it paid out.

That surplus goes into the SS trust, which currently has $2.5trillion in it. There is a reason why SS tax is collected separately from the other federal taxes on you withholding. That's because it's supposed to be dealt with separately.

Lumping that program into the other spending is grossly misleading.

Posted by: StormAZ100 | July 15, 2010 11:01 AM | Report abuse

The comments to this entry are closed.

 
 
RSS Feed
Subscribe to The Post

© 2010 The Washington Post Company