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Starve the Beast...

Protect the middle class.

Jan 14, 2013, Vol. 18, No. 17 • By RAMESH PONNURU
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This argument—that keeping middle-class taxes low serves the cause of limited government—has much in common with what has been called the “starve the beast” theory: the theory, that is, that depriving the government of revenues will restrain spending. That idea was associated with the libertarian economist Milton Friedman, who argued that spending amounted to the sum of available revenues and the maximum politically acceptable deficit. That equation made controlling revenue seem to be the key to controlling spending.

The last few decades have not been kind to the theory. Taxes have fallen without much in the way of spending restraint. In 2003, the Bush administration both cut taxes and expanded Medicare to cover prescription drugs. William Niskanen, another libertarian economist, found that falling tax revenues were actually associated with higher spending. It may be that campaigns to cut taxes raised the size of the deficit the country was willing to -tolerate and prevented Friedman’s mechanism from working. So some conservatives and libertarians have moved toward a different theory: Serve the check. Make the middle class pay more of the price of government and it will demand less of it. On that theory, the fiscal cliff deal was a disaster because it protected the middle class.

The behavior of Republican politicians before Reagan was roughly consistent with the serve-the-check theory, even if they never articulated it. Newt Gingrich, representing the rising Reaganite view of taxes, condemned Bob Dole, an adherent of the old consensus, as a “tax collector for the welfare state.” Dole Republicans would raise taxes to cover spending increases and cut taxes only when spending fell—which it never did. 

The track record shows that neither starving the beast nor serving the check reliably constrains government spending. But if you believe that at some point, not all that far off, a rebalancing of the federal budget is both necessary and inevitable, and all of the budget deals and fights of any given year are actually attempts to influence the shape of that eventual settlement, then matters are pretty simple: Lower taxes push in the direction of lower spending, and higher spending in the direction of higher taxes. And the lower taxes that matter most for the shape of that settlement are the taxes on the middle class.

Ramesh Ponnuru is a senior editor at National Review, columnist for Bloomberg View, and visiting fellow at the American Enterprise Institute.

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