Introduction
This is the seventh installment in a series that summarizes
and evaluates tax policy in the Bush administration. Prominent public supporters of the tax cuts are
sometimes willing to acknowledge, at least privately, the
weakness of many of the various public justifications for
the policies, including the supposed effect on long-term
growth or as a short-term stimulus. The supporters will
nonetheless maintain that the tax cuts were still a good
idea because the "real" purpose was to contain the size of
government. This article examines links between the
enacted tax cuts and the goal of "starving the beast" —
that is, holding down government spending.
The notion that the Bush tax cuts were justified by an
effort to "starve the beast" is really several statements
rolled into one: First, that reductions in revenues are the
best way to control spending; second, that the structure
of the Bush tax cuts was justified by the goal of controlling
spending; third, that the tax cuts actually did reduce
spending; and fourth, that spending was too high in 2001
or was going to be too high in subsequent years in the
absence of the tax cuts. In assessing those claims, we
reach the following conclusions:
It is at best unclear whether tax cuts are effective in
restraining spending. The data appear more consistent
with the view that once fiscal discipline erodes
on one side of the budget, it tends to erode on the
other side, too. Aiming to reduce spending does not justify regressive
tax cuts. In fact, because most spending cuts
would be regressive, a tax cut aimed at reducing
spending could, on fairness grounds, be reasonably
expected to compensate by being progressive. It is hard to believe that the tax cuts were effective in
reducing spending, as spending has risen significantly
in defense, nondefense, and entitlement categories. Regardless of the legitimacy of starving the beast as
a justification for the original 2001 tax cuts, the
theory does not apply to the case for making the tax
cuts permanent because the government will face
budget deficits in the medium and long term even in
the absence of extending the tax cuts.View full article — (PDF - 488KB)