October 29, 2005

Feed the Beast

"Starve the beast"—Grover Norquist's theory that cutting taxes and running massive deficits will somehow force Congress to rein in spending—obviously looks flimsy after the high-spending Reagan and Bush years. Even the Cato Institute agrees. But via AngryBear, this old Daniel Shaviro article makes the point that cutting taxes and running huge deficits not only fails to curb spending, but also increases the influence of interest groups:
The increased fiscal gap also makes future government policy far less predictable. Having a looming debt of that size will stir every interest group in Washington to try to influence future policy. It won't be possible to take any government commitment for granted for more than a few years. With even Social Security and Medicare likely to be on the chopping block eventually, no group or lobby will be able to rely on political inertia to protect what it now has. That is an enviable state for members of Congress set on gaining campaign funds, but a worrisome situation for the rest of us.
Judging from the past four years, this seems anecdotally true—out-of-control deficits lead not only to more spending, but worse spending, tilted heavily towards lobbyists and other interest groups. Alternatively, one could look at it this way: when various political interests see certain groups rewarded with tax cuts, they feel they should be rewarded too. So the squabbling begins. Meanwhile, so long as government spending is being paid for with borrowing and future taxes rather than present-day taxes, it's very easy for Congress to spend more than it otherwise would. (Which is why, of course, big-government liberals have usually opposed balanced budgets.) Ultimately, it's probably easiest to restrain government spending after tax increases—since that sets a general tone of fiscal austerity, and perhaps becomes easier for Congressmen to turn down spending requests. Divided government probably helps too.

Obviously, though, from a Republican perspective, Bush- and Reagan-style tax cuts do accomplish two very important things: they redistribute wealth upwards—rather than tax the rentier class to pay for spending, the government just borrows from them instead and pays them interest for their generosity (during the Reagan years, that interest was paid with payroll tax hikes on workers); and second, the tax hikes put Democrats in a bind by forcing them to raise taxes if and when they come to power, which hurts them politically, and forces the "responsible" party to rein in its own preferred spending programs (the tax-cutting party, meanwhile, can spend more freely). It's all very clever, at least so long as deficits don't collapse the economy and prompt a socialist takeover of government. But that looks increasingly unlikely.
-- Brad Plumer 11:41 PM || ||