The tax-cut follies: Part II
A FEW WEEKS ago, I wrote a column about a paper that decimated the conservative worldview. The study, by William Niskanen of the Cato Institute, found that the conservative “starve the beast” strategy does not work. Indeed, since 1981, he found that tax cuts tend to produce more spending, while tax hikes produce less.
I wrote that it would be interesting to see how conservatives reacted to having the factual basis for their entire domestic strategy exposed as a fraud. And it is interesting because “starve the beast” is so central to the GOP approach to governing and because the reaction is a case study in how the conservative movement reacts when its views are disproved.
Well, the right has had sufficient time to formulate its response. The results aren’t very impressive.
Out of the reams of conservative commentary published over the last month, I have found exactly two items reacting to Niskanen’s research. Given his paper’s devastating implications, the response is quantitatively -- and qualitatively -- pathetic.
The first is an Op-Ed column by Nick Schulz in National Review Online. Schulz found Niskanen’s finding a big puzzle. “Why would tax cuts prompt more spending?” he asks. “The only explanation so far comes from Niskanen himself,” who hypothesizes that tax cuts make government cheaper, so voters want more of it.
The only explanation? My column, which Schulz cites but apparently has not read, offered a different and (if I do say so myself) convincing explanation. I argued that Democrats are willing to inflict pain on constituents in the form of spending cuts in order to balance the budget but not in order to give tax cuts to the rich. So, when Republicans agree to raise taxes, large numbers of Democrats will join them to cut spending. This happened in 1982, ’83 and ’90. Democrats did it themselves in ’93.
But when Republicans cut taxes, Democrats refuse to give them cover to make politically unpopular spending cuts. Republicans feel obliged to prove to voters that tax cuts aren’t hurting their cherished programs. The latest case in point: the Bush tax cuts resulted in a Bush spending boom.
It’s a clear explanation, amply supported by recent history. Schulz pretends it doesn’t exist and instead argues that Niskanen’s research shows that Americans don’t want higher tax rates, so that will pose a problem for liberals as the cost of entitlement programs rise. I’m not sure what this has to do with the point at hand. It certainly doesn’t explain why conservatives should persist in a demonstrably failed strategy.
The only other response I could find comes in the form of a single-paragraph mini-editorial from National Review. The editors have three points. First, they argue that tax cuts might “cause spending cuts after a few years.” For example, they posit that Ronald Reagan’s tax cuts may have “helped doom Bill Clinton’s” healthcare plan.
This might be persuasive if the Reagan deficits had stopped Clinton from trying to reform healthcare. But that’s the opposite of the truth -- Clinton pursued healthcare in part because of the deficits. Reform was an attempt to contain rising healthcare costs that were bankrupting government. And it failed not because of tax cuts and deficit pressure but because healthcare providers opposed it and helped convince the public that it would threaten their care.
Second, they note the “economic case” for cutting marginal tax rates. But no economic model shows that long-term tax cuts without spending cuts help the economy. Even the most conservative economists favoring tax cuts predicate their support on spending cuts to go with them. Once you prove that tax cuts will raise rather than lower spending, that approach goes out the window.
Finally, National Review’s editors sniff that Niskanen’s paper isn’t that big a deal because it “would only prove that there is no easy way to get a welfare state to reduce spending.” Huh? There is an easy way: Make a deal with moderate Democrats to raise taxes and cut spending! That’s exactly what Niskanen found and what the last two decades have shown can succeed.
But it’s also an approach the conservative movement fervently rejects. It’s said that the definition of insanity is doing the same thing over and over and expecting a different result. So do conservatives really care about cutting spending, or are they all insane?