Tuesday, November 20, 2012

Bizarre Beltway Thinking on Why Taxes Have to Be Raised

Bruce Bartlett, who held senior policy roles in the Reagan and George H.W. Bush administrations and served on the staffs of Representatives Jack Kemp and Ron Paul, is out with a strange, very strange justification for a tax increase.

He writes that the Republican stance in favor of tax cuts is really because Republicans want spending cuts. He goes on to say that the Republicans view a direct attack on spending cuts as impossible to achieve, so therefore the call for tax cuts, as a way of  reducing revenue and thus overall government spending. But, Bartlett then argues that this strategy doesn't work and therefore taxes should be raised.

I am not making this up. Bartlett writes:
Although it is commonly believed that the Laffer curve – the idea that tax cuts pay for themselves – is the core Republican idea about tax policy, this is wrong. The true core idea is something called starve-the-beast – the idea that tax cuts will force cuts in spending precisely because they reduce revenue. But there are slight indications that some conservatives have awakened to the reality that not only does starve-the-beast not work, but it also leads to higher spending...

The problem for Republicans, as is so often the case, is that the real-world impact of their theories doesn’t measure up to their theories. There was no reduction in spending as a share of the gross domestic product despite a sharp fall in revenues as a share of G.D.P. during the Reagan years. By the time Reagan left office the spending/G.D.P. ratio was about the same as it was in Jimmy Carter’s last year: 21.7 percent in 1980 vs. 21.3 percent in 1988.

During the George W. Bush administration, spending increased sharply even as revenues collapsed. Revenues as a share of G.D.P. fell to 17.5 percent in 2008 from 20.6 percent in 2000, yet spending rose to 20.1 percent in 2006, before the economic crisis hit, and 20.7 percent in 2008, from 18.2 percent of G.D.P.

In short, we have tested starve-the-beast theory in the laboratory, and it has failed miserably.

There certainly may those who hold the starve-the-beast theory within the GOP, however, this doesn't make it correct theory, anymore so than Bartlett's attempt to call for tax increases as a twisted way to shrink government is correct.  He uses, not surprisingly, some Cato Institute thinking to justify the higher taxes:
The late economist William Niskanen of the Cato Institute was another pioneer on the right in recognizing the perversity of starve-the-beast theory. His work has been revived by The Weekly Standard’s Andrew Ferguson in a new article for the conservative magazine. This is significant because The Standard often sets the agenda for Republicans. This article may signal a change in thinking about whether tax increases may be a better way of starving the beast than tax cuts. 
At the risk of reading the tea leaves too closely, I think Mr. Ferguson’s article needs to be read in conjunction with comments made by The Standard’s editor William Kristol on “Fox News Sunday” on Nov. 11. Said Mr. Kristol: “You know what? It won’t kill the country if we raise taxes a little bit on millionaires. It really won’t, I don’t think.”
Mr. Kristol is not a fool and can read the polls as easily as I can; he knows Republicans are holding a losing hand on taxes. A Nov. 14 Gallup poll shows the percentage of Americans favoring a spending-cuts-only approach to the deficit has fallen in half, to 10 percent from 20 percent last year; the percentage willing to accept higher taxes to reduce the deficit has risen to 86 percent from 73 percent.
Taxes are going to rise; that is no longer in doubt. The question for Republicans is what can they get in return. Starve-the-beast is dead. 
There are few problems with Bartlett's theory. First, Reagan did not cut taxes, that's a myth. Second, even if he (and W) did , this does not prove a correlation exists between cutting taxes and climbing government spending. This is simply bad methodology to use in the world of the social sciences.

But, further to call for a tax increase as a method to shrink government is really the sanctions theory of forcing people to rise up against their leaders by making life for the masses more miserable, applied on the domestic front. It is as absurd as it is on the international front. How well has it worked in Iran in forcing the government to change its policies?

Bottom line, for those who view ever expanding government as the problem, there is no twisted "let's raise taxes to shrink government" strategy that makes sense. When government gets its hands on more revenue, it spends it. As Murray Rothbard put it:

Those people who are properly worried about the deficit unfortunately offer an unacceptable solution: increasing taxes. Curing deficits by raising taxes is equivalent to curing someone's bronchitis by shooting him. The "cure" is far worse than the disease. 
One reason, as many critics have pointed out, raising taxes simply gives the government more money, and so the politicians and bureaucrats are likely to react by raising expenditures still further...the only sound cure for deficits is a simple but virtually unmentioned one: cut the federal budget. How and where? Anywhere and everywhere.
Indeed, the only way to shrink government is to cut spending and cut taxes. Bartlett's increase the tax pain on the people to cut government spending approach could only be taken seriously inside the Beltway, where any justification to raise taxes is taken seriously. And his analytical skills must be furthered called into question if he thinks the neocons at The Standard want to raise taxes to shrink government. They want higher taxes so that government can launch more wars and expand the empire.


  1. The Sith are indeed clever and their hologram "bartlett" is quite effective - even penetrating the not-so-strong shield at the American conservative;
    " ...we will get a deal." Who's this "we", white man?

  2. Ha! Ha! Is this Bartlett character in a Seinfeld episode? Is this comedy hour? I guarantee the federal government will have to make spending cuts in the next four years. You couldn't make this up if you tried.

  3. Republicans have lost their way -- assuming they ever knew their way. In light of the recent elections, Republicans new strategy will be to win back seats at any cost (using the excuse that once seated, they will reform themselves). From this strategy will emerge a New Pragmatism which will be nothing but a willingness to do whatever the Democrats want in order to gain favor with the voter who, increasingly, enjoys the benefits of living off of his neighbor. They've done it before; they'll do it again.

  4. It is like "god's work" Blankfein says....we need to raise taxes in order to preserve the status quo money printer cronyism....why is that so hard to understand?!

  5. Such thinking would make Rube Goldberg proud! Twisted and wrong.

  6. The Redumblicans have taken the Romneybot's defeat even harder than I would have dared hope. These people have gone absolutely bat-shit crazy. It would be funny, except that it will end up costing us a LOT of money.

  7. The obvious flaw with immediate term "Starve the Beast" is borrowing. Any shortfall you manage to create is simply papered over with a bonus additional future interest expense.

    However, "Starve the Beast" may simply take more time to succeed than it has yet been given. Eventually, the ability to sell and service government bonds will be overwhelmed along with revenue. At such a time we'll get to see if there are any more rabbits left in the hat, or more likely, a different flavor of beast.

  8. Another excuse from the Department of Fancy Reasons.

  9. Most of the Reagan-era "growth" came from a combination of money-printing and the "Rutledge Slosh" of money coming out of hiding (from PMs and tax shelters, although a lot of interesting movies got made in the 70s) as the economic environment was made a little bit less fascist in the early 80s (too bad it didn't last).

    The true moral of the story is that government is *always* the problem and that individuals will produce like *crazy* if you just leave them alone.

    No one in power not named Ron Paul will ever understand that, nor much of the populace, I fear.

    Last but not least, Supply-Siders were almost always clueless fascists. There is vulgar Supply-Side-ism just like vulgar Keynesianism. Two wrongly-applied memes do not a successful economic theory make.

  10. I recently read an article that argues total tax revenue to the US government has averaged just 17% since the end of WWII and from a low of about 15% to a high around 21%. Not sure of the accuracy but the data in the article seems to bear it out.

    During that period of time, marginal tax rates were as high as 91% but still did not generat more total tax income for the government.