Tuesday, March 22, 2011

Thirty Years of “Starve the Beast” has Crippled America

The Republican “Starve the Beast” strategy of cutting taxes depends on the mistaken idea that government spending will somehow magically follow tax revenues down. Thirty years of this magical thinking as regards tax policy has crippled America and left us with massive deficits.

Instead of proposing politically unpopular spending cuts, Republicans in the 1970s developed a strategy called “Starve the Beast” by which they would promote massive tax cuts, with the deliberate intention of worsening the deficit. With the high deficits, spending cuts could then be sold as a necessity to deal with the budget short falls; a sort of fiscal bait-and-switch. Bruce Bartlett, a conservative who worked in the Reagan and H.W. Bush administrations, provides an insightful history of Starve the Beast.

If you raise taxes to pay for government programs, you’re essentially making government programs more expensive. Conversely, if you cut taxes, you’re making government programs cheaper. Econ 101 tell us that when you reduce the price of something the demand for it goes up. Therefore, tax cuts make government programs cheaper thereby increasing demand for said government programs; the exact opposite of the theoretical intended effect of the Starve the Beast strategy.

The simple and obvious solution to 30 years of Starve the Beast idiocy is to raise taxes back to the pre-STB levels of the 1950s, 60s and 70s.

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