In today's column, Paul Krugman argues that
[t]here has always been a sense in which voodoo economics was a cover story for the real doctrine, which was “starve the beast”: slash revenue with tax cuts, then demand spending cuts to close the resulting budget gap. The point is that starve the beast basically amounts to deliberately creating a fiscal crisis, in the belief that the crisis can be used to push through unpopular policies, like dismantling Social Security.
This goes back to Reagan's position that the way to cut government spending was to "cut the government's allowance" by reducing taxes.
Only problem is, it doesn't work. Never has. Read why…
Even on their own terms, Republican economic policy doesn't work, as admitted by William A. Niskanen, former chairman of the libertarian Cato Institute. You can read the argument yourself here, but here's the gist:
When you slash the government's revenue ("starving the beast"), you reduce the apparent cost of government by not paying for all of it. Naturally enough, when you put something on sale, you tend to get more of it. As has been shown again and again, people like government benefits—they just don't like paying for them.
Niskanen 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.
In other words, if you're serious about cutting government spending, the way to do it is to pay for all the government you use, with—oh noes!—a tax increase.
Of course, we shouldn't even be talking about cutting government spending due to the liquidity trap that Krugman often cites, but this is another case of Republican "heads up their asses" BS.
Interestingly, Niskanen's research indicates that a tax rate of 19% of the GDP is an equilibrium point where taxes neither increase or decrease spending. The Bush tax cuts knocked the rate well below this point—yet another reason they should be allowed to expire.