FEEDING THE BEAST….What happens if you lower the cost of something? People buy more of it. What if you raise the cost? People buy less of it.
So: what happens if the federal government reduces taxes and runs a deficit — thus lowering the “cost” of government? People will “buy” more government.
This actually makes a strange kind of sense — if there are no additional taxes to cause you pain, why shouldn’t you support big government? — and William Niskanen, the chairman of the Cato Institute, says he now has research to back this up:
Niskanen recently analyzed data from 1981 to 2005 and found….”no sign that deficits have ever acted as a constraint on spending.” To the contrary: judging by the last twenty-five years (plenty of time for a fair test), a tax cut of 1 percent of the GDP increases the rate of spending growth by about 0.15 percent of the GDP a year. A comparable tax hike reduces spending growth by the same amount.
….”I would like to be proven wrong,” says Niskanen. No wonder: for the modern conservative coalition, the implications of his findings are discomfiting, and in a sense tragic.
In other words, “starve the beast” doesn’t work. If you cut taxes, all you do is encourage additional spending.
The article quoted is in the June issue of The Atlantic Monthly, which as of yesterday was not on our local newsstands.