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The Bush Tax Cuts: Did they reduce the size of government?

President Bush and some of his supporters have argued that one purpose of the tax cuts is to "starve the beast," that is, to contain or reduce the size of government by depriving it of revenue. It is true that, in the long run, simple arithmetic dictates that the government’s spending must equal its revenue. Thus, if taxes are cut (or at least never increase), government spending must eventually decline. In practice, however, the Bush tax cuts have been accompanied by an acceleration in spending, both in inflation-adjusted dollars and in proportion to the economy, which means that the tax cuts have not led to lower government spending but have instead increased the budget deficit.

  • In practice, neither tax cuts in general nor the Bush tax cuts in particular seem especially effective in restraining spending. The data over the past twenty-five years appear much more consistent with the view that once fiscal discipline erodes on the tax side of the budget, it tends to erode on the spending side, too.
  • Since the Bush tax cuts were enacted, government spending has increased significantly in all major categories: defense spending, domestic spending, and entitlement spending. As a proportion of the economy, total government spending has gradually increased over President Bush’s tenure, from 18.4 percent of GDP in 2000 to 20.3 percent of GDP in 2006.
 
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   Entry 4 of 9