"My goal is to cut government in half in twenty-five years, to get it down to the size where we can drown it in the bathtub." - Grover Norquist, Americans for Tax Reform
For decades, Reaganite movement conservatives have repeated their mantra of "lower taxes, lower spending" ad naseum, possibly in the hope that if they repeat it enough, it will become true. But is it? Does cutting taxes truly "starve the Beast"? Are Democrats just a bunch of "tax and spend" liberals? Is Congress unable to be trusted with your money?
According to the chairman of the conservative Cato Institute, the data says otherwise.
::More debunking of GOP spin on the flip.::
Factoid #1: Americans for Tax Reform was a front organization formed inside the Reagan White House to create an astroturf group to build support for Reagan's 1986 tax reform legislation. Grover Norquist, former head of the College Republicans, was chosen to head the project.
It has been a long-term strategy of the right-wing movement that by aggressively cutting taxes, government spending will be forced to go down, a strategy (or "stategery", if you prefer) often called "starving the Beast." The Beast of course, apparently being the Great Satan that is the U.S. Government. (Hey, there's a reason we call them wingnuts.)
Under the current Republican Congress and the Bush Adminstration, we have seen aggressive and profligate tax cut after tax cut. In just the last few weeks, the GOP Congress authorized extension of Bush's bloodletting tax cuts.
Yet, rather than see government shrink, we've seen government grow, along with, of course, the transformation of the largest surplus in U.S history to the largest deficit in U.S. history. To quote Daily Show veteran Lewis Black: "You'd'a been better off if your Congressman came to your door and pissed on your foot." Conservative Kool-aid Kids want to pin the blame on Bush. "He's not a real conservative" Or, "He's an in-the-closet liberal." Blah. Blah. Blah. Drink some more Koo-aid, ya schmucks.
Factoid #2: While exending BushCo's tax cuts, the GOP left the Alternative Minimum Tax untouched. The AMT, originally meant to prevent high income households from escaping their tax obligations through tax loopholes, is increasingly hitting middle class households, in particular, individuals in professional services who happen to be concentrated around coastal cities. In other words, Blue State accountants, lawyers, doctors, engineers and the like who are increasingly voting Democratic. For the GOP, in taxes, like everything else, politics trumps policy.
Yet, according to a prominent conservative, the right-wing, as in almost everything of late, has substituted fantasy for fact. In this month's The Atlantic, William A. Niskanen, chairman of the libertarian Cato Institute, has found that the data demonstrates a curious fact: when federal taxes go up, federal spending goes DOWN. Niskanen is no lightweight - he is a dyed-in-the wool conservative - University of Chicago trained economist, assistant director of Nixon's Office of Management and Budget, chairman of Reagan's Council of Economic Advisers.
Niskanen has found that contrary to conservative dogma, cutting taxes results in HIGHER spending, not less. Analyzing data from 1981 (beginning of the anti-tax Reagan era) to 2005, Niskanen performed a statistical regression controlling for unemployment (which independently influences spending and taxes) and has found that deficits do not constrain spending. To the contrary, over the last 25 years, a tax cut of 1% of GDP INCREASES the rate of spending growth by about 0.15% of GDP. Likewise, a tax increase of 1% of GDP reduces spending by a comparable amount. Further, the equilibrium tax rate is 19% of GDP - when taxes as a percentage of GDP are less than 19%, spending grows, when taxes are higher than 19%, spending shrinks. Under Bush, tax revenues have been well below 19% since 2002. And we all know what has happened to the budget since then.
But how could this be, cry the simpletons on Fox News and Rush's Dittoheads? Niskanen provides an answer that a true (as opposed to ideological) economist could appreciate. When taxes are reduced (and deficits increased), the public gets government services at a discount. For example, imagine the federal budget balanced at $1 trillion. A tax cut of $200 billion results in a deficit at that amount. However, it also means the public gets government services at 80 percent of cost. Its like all the government is having a 20% on everything sale. And what happens when you put something on sale? People - those pesky rational economic actors - demand MORE of the reduced price good, not less.
Powerfully, there is a rational economic corrollary to Niskanen's findings, also borne out by the data. When taxes are increased, the public feels that governement services are MORE expensive. As a result - rational economic actors again - they demand less, resulting in decreased government spending. Under Bush I and Clinton's deficit-cutting packages we saw exactly that - an increase in taxes, especially on the wealthy, and a reduction in government spending resulting in growing budget surpluses. (Surpluses, in my opinion, which could have been used to provide universal health care and greater access to college education for the benefit of increased U.S. global competiveness. Heck, I'd have supported even deeper spending cuts at the time in exchange.)
Factoid #3: Remember Al Gore's famous "lockbox"? Pres. Clinton and Treasury Secretary Rubin near the end of the Clinton admistration proposed to set aside a sizeable portion of the federal budget surpluses in a "lockbox" dedicated solely to Social Security solvency. If enacted, it would have gone a long way to ensuring the solvency of Social Security though the period of the Baby Boom retirement bump. The GOP and BushCo put an end to that.
Consider the case of the Iraq War. The GOP Congress and the Bush Administration have committed our country to a costly - and deranged - war in Iraq. Like all wars, the Iraq War is expensive and a huge drain on the federal treasury. At the same time, they have cut taxes like its going out of style. The result, combined with the lack of a draft, is that the American public is not required to bear any cost - in blood or toil - for the war. Is it any wonder then, that the public has been fairly docile when it comes to the war? Imagine what the case would be if since the invasion of the war, all the costs of the war were paid for with a series of tax increases. Do you think we would still be there?
Factoid #4: When liberals make Adam Smith their friend, liberals win. Okay, that one is just my two cents.
So the next time you see a wingnut arguing that we need to cut taxes to shrink government, tell them that the chairman of the Cato Institute says they have no idea what they are talking about. And tell them that while Democrats may raise taxes, history has shown - they'll probably cut spending too.