Starve the beast

Ronald Reagan gives a televised address from the Oval Office, outlining his plan for tax reductions in July 1981

"Starving the beast" is a political strategy employed by American conservatives to limit government spending by cutting taxes, in order to deprive the federal government of revenue in a deliberate effort to force it to reduce spending.

The term "the beast", in this context, refers to the United States Federal Government and the programs it funds, using mainly American taxpayer dollars, particularly social programs such as education, welfare, Social Security, Medicare, and Medicaid.

Total tax revenues as a percentage of GDP for the U.S. in comparison to the OECD and the EU 15.

On July 14, 1978, economist and future Federal Reserve chairman Alan Greenspan testified to the U.S. Senate Finance Committee: "Let us remember that the basic purpose of any tax cut program in today's environment is to reduce the momentum of expenditure growth by restraining the amount of revenue available and trust that there is a political limit to deficit spending."

Before his election as President, then-candidate Ronald Reagan foreshadowed the strategy during the 1980 US Presidential debates, saying "John Anderson tells us that first we've got to reduce spending before we can reduce taxes. Well, if you've got a kid that's extravagant, you can lecture him all you want to about his extravagance. Or you can cut his allowance and achieve the same end much quicker."

The earliest use of the actual term "starving the beast" to refer to the political-fiscal strategy (as opposed to its conceptual premise) was in a Wall Street Journal article in 1985, wherein the reporter quoted an unnamed Reagan staffer.

Since 2000

The tax cuts and deficit spending of former US President George W. Bush's administration were attempts to "starve the beast." Bush said in 2001: "so we have the tax relief plan [...] that now provides a new kind—a fiscal straightjacket [sic] for Congress. And that's good for the taxpayers, and it's incredibly positive news if you're worried about a federal government that has been growing at a dramatic pace over the past eight years and it has been.

Republican presidential candidate Fred Thompson's tax-cut plan, incorporating a flat tax, also deferred paying for the larger deficits it would create. It "would most likely be funded by lower government spending on Social Security and Medicare benefits", according to the Wall Street Journal.

Political activist Grover Norquist authored an oath, the so-called "Taxpayer Protection Pledge," that 279 Senators and Congressman have signed. The oath states the signatories will never vote to raise taxes on anyone under any circumstances. It is viewed by some of the unsigned as a stumbling block to mutual fiscal negotiations to benefit the country.

Economic analysis

James M. Buchanan, a Nobel Prize-winning economist, helped develop the fiscal illusion hypothesis: "It's obvious, borrowing allows spending to be made that will yield immediate political payoffs without the incurring of any immediate political cost." In their book Democracy in Deficit (1977), Buchanan and Richard E. Wagner suggest that the complicated nature of the U.S. tax system causes fiscal illusion and results in greater public expenditure than would be the case in an idealized system in which everyone is aware in detail of what their share of the costs of government is.

Empirical evidence shows that Starve the Beast may be counterproductive, with lower taxes actually corresponding to higher spending. An October 2007 study by Christina D. Romer and David H. Romer of the National Bureau of Economic Research found: "[...] no support for the hypothesis that tax cuts restrain government spending; indeed, [the findings] suggest that tax cuts may actually increase spending. The results also indicate that the main effect of tax cuts on the government budget is to induce subsequent legislated tax increases."

William Niskanen, chairman emeritus of the libertarian Cato Institute, criticized "starve the beast." If deficits finance 20% of government spending, then citizens perceive government services as discounted. Services that are popular at 20% off the listed price would be less popular at full price. He hypothesized that higher revenues could constrain spending, and found strong statistical support for that conjecture based on data from 1981 to 2005. Another Cato researcher, Michael New, tested Niskanen's model in different time periods and using a more restrictive definition of spending (non-defense discretionary spending) and arrived at a similar conclusion.

Professor Leonard E. Burman of Syracuse University testified to a U.S. Senate committee in July 2010 that: "My guess is that if President Bush had announced a new war surtax to pay for Iraq or an increase in the Medicare payroll tax rate to pay for the prescription drug benefit, both initiatives would have been less popular. Given that the prescription drug benefit only passed Congress by one vote after an extraordinary amount of arm-twisting, it seems unlikely that it would have passed at all if accompanied by a tax increase. Starve the beast doesn't work."

Economist Paul Krugman summarized as: "Rather than proposing unpopular spending cuts, Republicans would push through popular tax cuts, with the deliberate intention of worsening the government's fiscal position. Spending cuts could then be sold as a necessity rather than a choice, the only way to eliminate an unsustainable budget deficit." He wrote that the "...beast is starving, as planned..." and that "Republicans insist that the deficit must be eliminated, but they're not willing either to raise taxes or to support cuts in any major government programs. And they're not willing to participate in serious bipartisan discussions, either, because that might force them to explain their plan—and there isn't any plan, except to regain power."

Historian Bruce Bartlett, former domestic policy adviser to President Ronald Reagan, has called Starve the Beast "the most pernicious fiscal doctrine in history", and blames it for the increase in US government debt since the 1980s.

Historical data fails to live up to the rhetoric, however. In fact, it paints a different picture, of the government as a whole acting as a spendthrift even worse than the child depicted by President Reagan. The government collects money from people, and spends money on people. Since FY 1981, revenue has increased faster than the combined rate of population growth and inflation, while spending has increased much faster than the combined rate of population growth and inflation, with the deficit and debt forming and growing as a function of the difference in growth rates between revenue and spending.

Using a baseline (starting in FY 1981, the year before the first Reagan budget went into effect) of revenue (per Treasury Dept) and spending (per Treasury Dept) increasing perfectly in line with population growth (per Census Bureau) and CPI growth (per BLS), the data paint a clear picture. The picture is one of government revenue increasing significantly over time, but of government spending that increase and then some - without regard to which party controls Congress or the White House. Actual revenue initially fell behind the constant-per-capita baseline in 1982 but rebounded, surpassing the constant-per-capita baseline in FY 1986 (the year before the 1986 tax reform went into effect). Actual revenue has outpaced constant-per-capita baseline ever since, with the initial deficit being compensated for by FY 1989. From FY 1982 through FY 2019, the federal government has, cumulatively, collected $14.2TN more revenue than it would have collected had revenue increased perfectly in line with population growth and inflation. Using the same baseline year of FY 1981, annual federal spending has consistently been higher than the counterfactual of spending having increased perfectly in line with population growth and inflation. Cumulatively, the federal government has spent $22.8TN more from FY 1982 through FY 2019 than it would have spent had annual spending, beginning in 1982, increased perfectly in line with population growth and inflation. For a counterfactual in which the federal government set, at the time of the first Reagan budget, a spending baseline in which spending increased perfectly in line with population growth and inflation, the government would have spent, cumulatively, $61.7TN from FY 1982 through FY 2019, instead of $83.9TN. Actual federal revenue cumulatively collected from FY 1982 through FY 2019 was $70.5TN. This is the difference between a $22TN national debt and the counterfactual - with no "cuts" at all, but merely a spending growth rate in line with population growth and inflation - of a national "rainy day" fund of about $8TN..... and/or the financial capacity to take on major projects.

There is good news and bad news in this. The bad news is that the opportunity to balance the budget, build a surplus and even build up a "rainy day fund" of about two to three years' spending, was frittered away, and $22TN of debt has built up. The good news is that, because there is a market for Treasury bills, notes and bonds, the government has time to repair its finances, and can do so without undue pain - if the government were to adopt a "spending diet" in the form of a baseline in which total federal spending increased perfectly in line with the Census Bureau's population estimate and the BLS estimate of CPI, and made no change to tax policy, then federal revenue - which tends, no matter what the tax rates are, to grow faster than the combined rate of population growth and inflation - would eventually catch up and surpass federal spending, enabling the government to allocate that surplus toward debt reduction. This requires no "cut" - "Draconian" or otherwise. It simply requires a modicum of discipline. It requires not increasing spending in real per capita terms above its present levels.

It is true that the US has an aging population, and that the budget includes "entitlement" programs, including programs for people over 65. This does not offset the numbers, or invalidate the baseline of growth in line with population and CPI. The over-65 population in the United States in 1980 was about 11.3% of the population. In 2018, 38 years later, it was about 16%. That reflects a steady but gradual increase. By the same token, the population 65 and under is increasing at a much slower pace - and there are several federal programs targeting people under 65. Moreover, there are several programs that serve a function that is more or less static - or at least for which changes would not be a function of population. It may be true that the prices government pays have increased faster than the prices that everyone else pays. That's a description of the problem, not an excuse for the problem.

Government collects money from, and spends money on, the people. The revenue and spending baselines should be an increase perfectly in line with population growth and inflation. We are very lucky that revenue has far outpaced this baseline since FY 1981. The government has increased spending far in excess of this baseline since 1981, and that is the cause of the rising deficit and debt. No single person or party is responsible. But by adhering to such a spending baseline going forward, the government can dig itself out of the hole.

Political advocacy

Former U.S. Senator Jon Kyl (R-AZ), a veteran of the Senate Finance Committee, stated "you should never have to offset the cost of a deliberate decision to reduce tax rates on Americans."

Lobbyist Grover Norquist is a well-known proponent of the strategy and has famously said, "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."

"Feed the beast"

A related idea known as "Feed the beast", refers to increasing taxes for the purported purpose of balancing the budget only to make the government spend those inflows. Writer Stephen Moore and economist Richard Vedder have written in the Wall Street Journal that every new dollar of new taxes leads to more than one dollar of new spending according to their research. In an op-ed, they both stated that "[t]he grand bargain so many in Washington yearn for—tax increases coupled with spending cuts—is a fool's errand" since "higher tax collections never resulted in less spending." Their conclusions have been disputed by economist and writer Bruce Bartlett in The Fiscal Times, who stated that tax increases in the early 1990s helped contribute to more austere budgets in the late 1990s.

See also

• Financial position of the United States
• National debt of the United States
• Reaganomics
• Taxation in the United States
• Tax resistance
• Wanniski's Two Santa Claus Theory

Individuals

• Lee Atwater