This is not very new, but an article in the Atlantic Monthly is flagging this month and it is certainly worth noting.
The “Starve the Beast” assertion is inconsistent with the facts, at least since 1980. My study finds that there was a strong negative relation between the federal spending percent of GDP and the federal revenue percent of GDP from 1981 through 2005, even controlling for the unemployment rate.
An increased belief in the “Starve the Beast” assertion has substantially reduced the traditional Republican concern for fiscal responsibility – leading to a pattern of tax cuts, increased spending, and increased deficits. This pattern has been strongest during the current Bush administration, primarily because the Republicans control both the administration and a majority of both houses of Congress.
This comes from William Niskanen, the chairman of the Cato Institute, as posted on their quasi-blog.
This is not the first time he writes about this (pdf, 1 page, from 2004):
In a professional paper published in 2002, I presented evidence that the relative level of federal spending over the period 1981 through 2000 was coincident with the relative level of the federal tax burden in the opposite direction; in other words, there was a strong negative relation between the relative level of federal spending and tax revenues. Controlling for the unemployment rate, federal spending increased by about one-half percent of GDP for each one percentage point decline in the relative level of federal tax revenues. Although not included in the sample for this test, the first three years of the current Bush administration were wholly consistent with this relation.
The theory behind this, as explained in the Atlantic Monthly, is simple:
Even during the Reagan years, Niskanen was suspicious of Starve the Beast. He thought it more likely that tax cuts, when unmatched with spending cuts, would reduce the apparent cost of government, thus stimulating rather than stunting Washington’s growth. “You make government look cheaper than it would otherwise be,” he said recently.
Suppose the federal budget is balanced at $1 trillion. Now suppose Congress reduces taxes by $200 billion without reducing spending. One result is a $200 billion deficit. Another result is that voters pay for only 80 percent of what government actually costs. Think of this as a 20 percent discount on government. As everyone knows, when you put something on sale, people buy more of it. Logically, then, tax cuts might increase the demand for government instead of reducing the supply of it. Or they might do some of each.
(…)
Again looking at 1981 to 2005, Niskanen then asked at what level taxes neither increase nor decrease spending. The answer: about 19 percent of the GDP. In other words, taxation above that level shrinks government, and taxation below it makes government grow. Thanks to the Bush tax cuts, revenues have been well below 19 percent since 2002 (17.8 percent last year). Perhaps not surprisingly, government spending has risen under Bush.
(…)
conservatives who are serious about halting or reversing the dizzying Bush-era expansion of government–if there are any such conservatives, something of an open question these days–should stop defending Bush’s tax cuts. Instead, they should be talking about raising taxes to at least 19 percent of the GDP. Voters will not shrink Big Government until they feel the pinch of its true cost.
And that’s exactly what he advocates in the two papers I linked to above.
This graph, which I have used before, and which represents all public spending and income (recettes = income, dépenses = spending, both as % of GDP), not just federal numbers, shows this very clearly: under Clinton, the tax take increased and spending decreased. Under W., the opposite happened.
The conclusion of the Atlantic Monthly is damning:
By turning a limited-government movement into an anti-tax movement, conservatism has effectively gone into business with the Big Government that it claims to oppose. It is not starving the beast. It is fueling the beast’s appetite. And the beast has a credit card.
