Starve the Beast: Just Bull, not Good Economics

[sokpupet]

A good article on the economic irresponsibility advocated by much of the modern GOP.

LINK

A prime reason why we have a budget deficit problem in this country is because Republicans almost universally believe in a nonsensical idea called starve the beast (STB). By this theory, the one and only thing they need to do to be fiscally responsible is to cut taxes. They need not lift a finger to cut spending because it will magically come down, just as a child will reduce her spending if her allowance is cut — the precise analogy used by Ronald Reagan to defend this doctrine in a Feb. 5, 1981, address to the nation.

It ought to be obvious from the experience of the George W. Bush administration that cutting taxes has no effect whatsoever even on restraining spending, let alone actually bringing it down. Just to remind people, Bush inherited a budget surplus of 1.3 percent of the gross domestic product from Bill Clinton in fiscal year 2001. The previous year, revenues had been 20.6 percent of GDP, spending had been 18.2 percent, and there had been a budget surplus of 2.4 percent.

When Bush took office in January 2001, we were already well into fiscal year 2001, which began on Oct. 1, 2000. He immediately pushed for a huge tax cut, which Congress enacted. In 2002 and 2003, Bush demanded still more tax cuts, even as the economy showed no signs of having been stimulated by his previous tax cuts. The tax cuts and the slow economy caused revenues to evaporate. By 2004, they were down to 16.1 percent of GDP. The postwar average is about 18.5 percent of GDP.

Spending did not fall in response to the STB decimation of federal revenues; in fact, spending rose from 18.2 percent of GDP in 2001 to 19.6 percent in 2004, and would continue to rise to 20.7 percent of GDP in 2008. Insofar as the Bush administration was a test of STB, the evidence clearly shows not only that the theory doesn't work at all, but is in fact perverse.

Even if one believes that things like the Transportation Security Administration were worth the money, it doesn't justify putting all the expense on the national credit card

Of course, spending rose partly because of terrorist attacks and wars in Iraq and Afghanistan. While it's true enough that these events caused an increase, they do not come close to justifying a rise in spending equal to 2.5 percent of GDP. Even if one believes that things like the Transportation Security Administration were worth the money, it doesn't necessarily follow that they justify putting all the expense on the national credit card. Bush could have proposed spending cuts or tax increases to pay for these things and prevent a run-up in the debt. But he didn't. Throughout his administration he didn't veto a single spending bill until well into his second term.

Nor was Bush's budgetary profligacy limited to programs that could be justified, however loosely, on national security grounds. As I detailed last week, he and a Republican Congress created a massive new entitlement program, Medicare Part D, to buy the votes of seniors and buy themselves reelection in 2004. Among those voting for this monstrosity were many Republicans still in Congress today who are unjustly considered to be staunch fiscal conservatives, including incoming Speaker of the House John Boehner, House Majority Leader Eric Cantor, and House Budget Committee chairman Paul Ryan.

But there is a flip side to STB at work, as well. If tax cuts starve the beast, then it logically follows that tax increases must feed the beast

Because of its obvious ridiculousness, one seldom hears conservatives say openly that tax cuts automatically reduce spending. But it still underpins the entire Republican budget strategy — tax cuts never have to be paid for, no meaningful spending cuts are ever put forward, earmarks and foreign aid are said to be the primary sources of budget deficits, and similar absurdities.

But there is a flip side to STB at work as well. If tax cuts starve the beast, then it logically follows that tax increases must feed the beast. This variation of STB was on full display in a Nov. 21 Wall Street Journal op-ed article by Wall Street Journal editorial writer and Republican operative Steve Moore, who founded the Club for Growth, which gives vast sums to Republican candidates, and Ohio University economist Richard Vedder.

The Moore-Vedder article argues strenuously that tax increases must never be considered no matter how big the deficit is. The reason, based on research Vedder has been updating since the 1980s, is that tax increases always feed the beast, leading to spending increases larger than the tax increase. Originally, he said that spending would rise $1.58 for every dollar of tax increase, leading to an increase in the deficit rather than a reduction. Vedder now says that spending only rises $1.17 for every dollar of tax increase.

By this logic, the tax increase enacted in 1993, which raised the top federal income tax rate to 39.6 percent from 31 percent, should have caused a massive increase in the federal budget deficit. In fact, it did not. Spending was 22.1 percent of GDP in 1992 and it fell every year of the Clinton administration, to 21.4 percent of GDP in 1993, 21 percent in 1994, 20.6 percent in 1995, 20.2 percent in 1996, 19.5 percent in 1997, 19.1 percent in 1998, 18.5 percent in 1999, and 18.2 percent in 2000.

And contrary to another commonly-held Republican idea — that all tax increases reduce revenue via the Laffer Curve — revenues rose from 17.5 percent of GDP in 1992 to 20.6 percent in 2000.

According to Republican mythology, repeated by Moore and Vedder, the budget was balanced only because Republicans got control of Congress in the 1994 elections. But the deficit had already shrunk from 4.7 percent of GDP in 1992 to 2.9 percent in 1994. Budget experts who don't shill for the Republican Party generally agree that the budget reforms and tax increases of 1990 and 1993 — which were both enacted against strenuous opposition from almost every Republican in Congress — deserve the bulk of the credit for bringing down spending and the deficit with tough budget enforcement rules and higher taxes.

Moore and Vedder simply deny that the 1990 and 1993 tax increases had anything to do with the budget surpluses that emerged in 1998, even though higher federal revenues contributed 44 percent to the improvement in the deficit. Between 1992 and 1998, spending fell by 3 percent of GDP and revenues rose 2.4 percent.

To the extent that there was an increase in revenues, Moore and Vedder imply that it was due to a Laffer Curve effect from the cut in the maximum capital gains tax rate that Republicans achieved in 1997 — an argument first made by Republican speechwriter Clark Judge in a Wall Street Journal op-ed on Jan. 10.

To be sure, there is good research showing that a cut in the capital gains tax may raise short-term revenues due to an unlocking effect as people realize gains on assets they may have owned for many years. But this is a one-time effect. To raise revenues for more than a couple of years, a lower capital gains rate would have to raise investment and economic growth, which it undoubtedly does to some extent. However, it's implausible to attribute all of the rapid growth in the late 1990s to lower capital gains taxes. The keys were development of the Internet, which long predated the 1997 capital gains rate cut, and an easy money policy by the Federal Reserve.

In any case, Treasury Department data show that higher capital gains tax revenues contributed at most 0.33 percent to the 1.4 percent-of-GDP rise in revenues between 1997 and 2000. Of course, they contributed nothing to the decline in spending from 19.5 percent of GDP to 18.2 percent. Thus even taking the Republican argument at face value, higher capital gains revenues contributed at most 6 percent to the deficit improvement between 1997 and 2000.

Starve the beast is a crackpot theory, and its flip side that higher taxes invariably feed the beast is no better. They are just self-serving rationalizations for Republican budgetary irresponsibility.

Complete article HERE.

Additional article HERE.

 

[TurtleDude]

sure beats the dem alternative of continually jacking up taxes "on the rich" while spending more and more to buy the votes of their minions

 

[TurtleDude]

The reference to clinton as "proof" ignores the rare and fortuitous dot come bubble that caused Clinton's tax hikes not to have the deleterious impact that they normally would have had

 

[Goshin]

A highly partisan article of dubious value.

 

[TurtleDude]

A highly partisan article of dubious value.

those whose power and influence are tied to an ever expanding government will make all sorts of claims to keep that gravy train a rollin

 

[mpg]

"Republicans almost universally believe in a nonsensical idea called starve the beast (STB). By this theory, the one and only thing they need to do to be fiscally responsible is to cut taxes."

straw man much?

 

[sokpupet]

~snip

The Two Santa Claus Theory, Understanding Republican Rhetoric

" In reality, his tax cuts did what they have always done over the past 100 years – they initiated a bubble economy that would let the very rich skim the cream off the top just before the ceiling crashed in on working people."...........This sentence from the following article should hold your interest to spur you on to reading and understanding the complete article. You have been conned for thirty years, it is time you start to understand this.The Republican party has controlled this country for the last 30 years BECAUSE of it's spending...not because of balanced budgets and small government.

The Two Santa Claus Theory, Understanding Republican Rhetoric - Mad Mad World

 

[TurtleDude]

~snip


The Two Santa Claus Theory, Understanding Republican Rhetoric - Mad Mad World

LOL Thom Hartmann-Former SDS guy, bogus degrees from mail order unversities-far left moonbat

a blog no less

great authority there dudette

 

[sokpupet]

LOL -Former SDS guy, bogus degrees from mail order unversities-far left moonbat

a blog no less

great authority there dudette

Thom Hartmann is a successful person with no drug/alcohol addictions in his history, is well educated, and published; not like your right-wingers angry, white, male, addict in remission representative of the embodiment of your American conservative ideals=BECK/LIMBAUGH. :rofl

 

[cpwill]

sure beats the dem alternative of continually jacking up taxes "on the rich" while spending more and more to buy the votes of their minions

no, it doesn't; both spend the same amount of money, but one fixes it so that we will also have to pay interest on the money spent. who do you think they are going to come after when our finances are failing?


tax cuts are good. deep spending cuts are more important right now thanks to the last few years of Republican (and Democrat) profligacy. if we didn't have this mountain of debt over our heads, we could cut spending slowly and cut taxes to try to match it. as it is, the best we can do is try to hold tax rates stable while increasing revenue by limiting deductions.

 

[VF500]

sure beats the dem alternative of continually jacking up taxes "on the rich" while spending more and more to buy the votes of their minions

The latest "welfare" group the Democrats are trying to co-opt is the group called "the 99ers" who are people who've been on unemployment for 99 weeks. Instead of actually trying to get the economy growing, by helping small businesses grow, the Obama administration keeps purposely driving down the economy and enslaving an ever growing segment of the population by continually extending unemployment benefits. It's in keeping with his father's dream of punishing the "colonialists" for his perception of "using" the third world. The constant extentions are being used under the guise of "humanitarian aid", of course. Yeah, let's rob people of their self esteem and call it the humanitarian thing to do. That's how they've justified welfaring every other class in this country.

 

[Grimjack19]

sure beats the dem alternative of continually jacking up taxes "on the rich" while spending more and more to buy the votes of their minions

The wealthy have not had their taxes raised in any meaningful way since the early-nineties.

 

[TurtleDude]

The wealthy have not had their taxes raised in any meaningful way since the early-nineties.

so what-neither have anyone else and many of them were dropped off the roles. the tax code is at its most progressive point in history.

the rich are the one group that are paying way too much taxes. an idea situation is everyone paying for what they use. The second most fair system is that if the top 1% make 22% of the income they pay 22% of the income tax even though they certainly don't use anywhere near 22% of the services funded by that tax.

are you one of those people who think that taxes on the rich should be ever increasing?

 

[Grimjack19]

The latest "welfare" group the Democrats are trying to co-opt is the group called "the 99ers" who are people who've been on unemployment for 99 weeks. Instead of actually trying to get the economy growing, by helping small businesses grow, the Obama administration keeps purposely driving down the economy and enslaving an ever growing segment of the population by continually extending unemployment benefits. It's in keeping with his father's dream of punishing the "colonialists" for his perception of "using" the third world. The constant extentions are being used under the guise of "humanitarian aid", of course. Yeah, let's rob people of their self esteem and call it the humanitarian thing to do. That's how they've justified welfaring every other class in this country.

This looks like somthing that could have been lifted straight from that lunatic D'Souza's book.

This yarn that unemplyment benefits makes people lazy is ludicrious. At a time when five people are looking for a job for every one opening that there is, how is "incentivizing" them to find a job by telling them to go crawl off into the woods and die going to actually help them get a job ?

 

[Grimjack19]

so what-neither have anyone else and many of them were dropped off the roles.

So you were wrong. Democrats haven't raised taxes on the wealthy in any meaningful way in decades.

the tax code is at its most progressive point in history.

This is what we call a lie ladies and gentlemen.

http://www.npr.org/news/graphics/2010/08/gr-tax-rates-624.gif

are you one of those people who think that taxes on the rich should be ever increasing?

I am as much as you are a person who thinks tax rates for the wealthy should ever be decreasing.

 

[TurtleDude]

So you were wrong. Democrats haven't raised taxes on the wealthy in any meaningful way in decades.



This is what we call a lie ladies and gentlemen.

http://www.npr.org/news/graphics/2010/08/gr-tax-rates-624.gif



I am as much as you are a person who thinks tax rates for the wealthy should ever be decreasing.

I do, the rich pay too much now and others pay too less which is why we have a bloated ever expanding government-too few people have to pay for it and thus have no incentive to cut the spending.

npr-uh that doesn't dispute my point-you are clueless if you think marginal rates determine how progressive the tax code is. what it means (pay attention) is the percentage of the tax burden carried by the top payers.

try again

 

[Grimjack19]

I do, the rich pay too much now and others pay too less which is why we have a bloated ever expanding government-too few people have to pay for it and thus have no incentive to cut the spending.

No incentive ? Please, the wealthy have a very comfortable relationship with the governenment.

npr-uh that doesn't dispute my point-you are clueless if you think marginal rates determine how progressive the tax code is. what it means (pay attention) is the percentage of the tax burden carried by the top payers.

At the federal level perphaps. Yet at the same time the wealthy control a greater percentage of the wealth in the country, so it makes sense.

 

[TurtleDude]

No incentive ? Please, the wealthy have a very comfortable relationship with the governenment.



At the federal level perphaps. Yet at the same time the wealthy control a greater percentage of the wealth in the country, so it makes sense.

you confuse those of us who are rich despite the government versus those who are rich because of the government. THe rich are not a monolithic group. .

You were caught being wrong about the fact that the tax code is the most progressive in history

way too many people don't pay any federal income taxes and that only makes the government bigger and bigger since those people don't have any incentive to control spending

the government is not properly tasked or empowered to redistribute income or make things "fair" for those who are untalented or unproductive

 

[Barbbtx]

LOL Thom Hartmann-Former SDS guy, bogus degrees from mail order unversities-far left moonbat

a blog no less

great authority there dudette

Is he a communist? I listen to him and sometimes he seems more extreme than just a socialist.

 

[Barbbtx]

This looks like somthing that could have been lifted straight from that lunatic D'Souza's book.

This yarn that unemplyment benefits makes people lazy is ludicrious. At a time when five people are looking for a job for every one opening that there is, how is "incentivizing" them to find a job by telling them to go crawl off into the woods and die going to actually help them get a job ?

One way to find out if unemployment benefits are causing them to remain unemployed is to cut the 99ers off and see what happens. In Denmark they kept cutting back benefits and amazingly each time people found work shortly before their benefits ran out. For those who are really looking and unable to find work, there are always things like food stamps and welfare. 26 wks is the usual amount of time people could collect. We need to go back there and stop with the extentions. We can't afford it anymore.

 

[Grimjack19]

you confuse those of us who are rich despite the government versus those who are rich because of the government. THe rich are not a monolithic group. .

That's a rather self-aggrandizing myth you built up around yourself, that you made your fortune despite the terrible oppression you suffered at the hands of the gubmint, unlike the others.

way too many people don't pay any federal income taxes and that only makes the government bigger and bigger since those people don't have any incentive to control spending

Those people have access to a relatively small percentage of the country's wealth, but sure lets hike taxes on those who are least able to afford it so those best able to afford it can keep more money stashed away in the bank, for a much smaller increase in revenue.

the government is not properly tasked or empowered to redistribute income or make things "fair" for those who are untalented or unproductive

Social Darwinism, classy. But government is very good at redistributing income as we've seen, its just that that income is going from the middle class to the wealthy.

 

[Grimjack19]

One way to find out if unemployment benefits are causing them to remain unemployed is to cut the 99ers off and see what happens. In Denmark they kept cutting back benefits and amazingly each time people found work shortly before their benefits ran out. For those who are really looking and unable to find work, there are always things like food stamps and welfare. 26 wks is the usual amount of time people could collect. We need to go back there and stop with the extentions. We can't afford it anymore.

Oh, but we can afford to extend the Bush tax cuts indefinatley, yes sir !

But hey you may be on to something. Maybe we should freeze defense spending for a couple of months and see if the same magic that would make those jobs open up make Al Queda dissapear too.