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The Bush Tax Cuts: Are they justified as part of a "starve the beast" strategy?

Even if the starve-the-beast strategy had "worked" in the sense that the Bush tax cuts restrained government spending, the result would still not justify the specific tax cuts of President Bush’s first term, nor would it justify making those tax cuts permanent. Such an outcome would have been deeply unfair, as the spending cuts probably would have affected less affluent households the most, while the tax cuts went overwhelmingly to the rich. In any case, the strategy has not worked, and, with huge deficits looming, extending the tax cuts in the hope that the strategy will someday work would be a dangerous course.

  • Many components of government spending predominantly benefit low- and middle-income households. If the goal (or the effect) was to cut spending on these programs, then, as a matter of fairness, a starve-the-beast strategy should have offset the negative impact on low- and middle-income households by giving them a disproportionately large share of the tax cut. However, the Bush tax cuts did just the opposite-they tilted the benefits toward high-income households.
  • Whatever resonance "starve the beast" had in 2001, when the government had been running surpluses for several years, the government is now running substantial deficits that are on course to continue and grow. In this budgetary context, a "starve the beast" strategy becomes quite risky. After all, if such a strategy is vigorously pursued over many years but does not result in lower spending, the eventual outcome will be much larger budget deficits, with their growth-reducing drag - and even the risk of a full-blown fiscal crisis.
  • There are ways to encourage fiscal discipline and reduce government spending (if that is the goal) other than cutting taxes sharply and hoping that spending falls into line. One approach would be to draw up new budget rules, perhaps somewhat similar to those in place in the late 1980s and into the 1990s, which would place more emphasis in the budget process on the long-term fiscal imbalance facing the nation. An emphasis on the long-term imbalance would make the deficits appear larger, which, in the spirit of the "starve the beast" hypothesis, should create political pressure to hold down spending. Reforming budget procedures to focus on the long-run budget picture would provide a more accurate picture of the government’s true finances while not encouraging unaffordable tax cuts or unaffordable spending increases. Even if an altered set of budget rules failed to restrain spending, it is at least highly unlikely to create deeper fiscal problems, unlike the "starve the beast" strategy. Budget reforms thus seem likely to be at least as effective at restraining government spending-and significantly less risky-than making the Bush tax cuts permanent.
 
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   Entry 5 of 9