Want to lower government spending? Raise taxes.
I hesitate to open this particular can of worms, but there was a debate over the "FairTax" at the American Enterprise Institute this week. You national sales tax geeks out there--you know who you are, and I love ya!--can listen to it here.
But this post isn't about the "FairTax". It's about something interesting William Gale, an economist at Brookings Institution, pointed out during the debate: We had an episode earlier in this decade where the government cut taxes, and one of the arguments was that this was going to force Congress to cut spending. Exactly the opposite happened. Spending skyrocketed. Historically, that has been the pattern. When we cut taxes spending goes up, and when we raise taxes we cut spending and impose fiscal discipline on both sides of the budget. That's what happened in the 1990s.So what's up with that? Why hasn't "starving the beast" worked? William Niskanen of the libertarian Cato Institute has suggested a possible explanation: Cutting taxes makes government cheaper--for now, anyway--and people usually want more of something when it gets cheaper. In other news: The folks at the Wall Street Journal editorial page really should debunk this. I thought the difference in the 1990s was that Clinton and the Republican Congress gridlocked Washington so that there were very few new spending initiatives (e.g. Hillary's healthcare plan). It didn't hurt that the Cold War was over and military spending was cut. In the 1980s and 2000s we had one party in control of the White House and Congress. Tax cuts and increased spending. You can blame it on the GOP but I think it was that there nobody there to fight the President and the President wasn't going to veto his own party.
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