Thursday, May 04, 2006

Oh Snap!!!!!!!!

To supply siders, that is. Kevin Drum has a link to an Atlantic Monthly piece about a Cato Institute study up on his blog. The upshot? Something I've been saying for years -- reducing taxes inevitably causes an increase in government spending. Why? Simple, really: When you can get something for free (or more cheaply), you'll demand more of it. On the other hand, when you're forced to pay the (higher) actual cost of something, you'll demand less of it.

William A. Niskanen, the chairman of the libertarian Cato Institute, "recently analyzed data from 1981 to 2005 and found his hunch strongly confirmed. When he performed a statistical regression that controlled for unemployment (which independently influences spending and taxes), he found, he says, “no sign that deficits have ever acted as a constraint on spending.” To the contrary: judging by the last twenty-five years (plenty of time for a fair test), a tax cut of 1 percent of the GDP increases the rate of spending growth by about 0.15 percent of the GDP a year. A comparable tax hike reduces spending growth by the same amount.

The article's author offers three conclusions (emphases mine):

First, the root-canal economics of pre-Reagan conservatism was right all along: the way to limit the growth of government is to force politicians, and therefore voters, to pay for all the government they use—not to give them a discount.

Second, conservatives who are serious about halting or reversing the dizzying Bush-era expansion of government—if there are any such conservatives, something of an open question these days—should stop defending Bush’s tax cuts. Instead, they should be talking about raising taxes to at least 19 percent of the GDP. Voters will not shrink Big Government until they feel the pinch of its true cost.

Third, the most effective constraint of all is to raise taxes and cut spending: exactly the sort of anti-deficit package that anti-tax conservatives pummeled the first President Bush and President Clinton for approving, and exactly the sort of package that the current President Bush and his anti-tax allies are sworn to block.

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