Comment June 2006 Atlantic Monthly

Cutting taxes to shrink government doesn’t work—and that spells trouble for the conservative movement

Stoking the Beast

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President Carter ducked the presidential debate of September 21, 1980, but Ronald Reagan and John Anderson, the independent candidate, were on hand for a revealing exchange. The question was whether Reagan’s proposed tax cuts, if not balanced by spending reductions, would fuel inflation. Anderson thought so: “I have been very careful in saying that what I’m going to do is to bring federal spending under control first.”

Reagan scoffed. “John tells us that first we’ve got to reduce spending before we can reduce taxes,” he said. “Well, if you’ve got a kid that’s extravagant, you can lecture him all you want to about his extravagance. Or you can cut his allowance and achieve the same end much quicker.” With that statement, Reagan performed one of the last century’s great feats of political prestidigitation.

Until then, the conservative movement had been at odds with itself. Libertarians in the Goldwater tradition wanted to reduce spending in order to shrink Big Government. Supply-siders derided that idea as a political loser, “root-canal economics.” Instead, they demanded large tax cuts that would grow the economy. Traditional business conservatives, however, believed in balanced budgets, and they held tax cuts hostage to spending cuts that never happened. The movement was gridlocked.

Reagan and his supply-side vanguard saw a way to break the jam—or, more precisely, two ways. First, some argued that tax cuts would so energize the economy as to pay for themselves. That claim was widely controversial, even among Republicans (Reagan’s then-rival George H. W. Bush called it “voodoo economics”), and it proved mostly wrong. Less controversial, but in the end more important, was the claim Reagan lobbed at Anderson. Often called the Starve the Beast hypothesis, it held that tax cuts shrink the federal Leviathan by starving it of funds. Tax cuts need not await spending cuts because they would cause spending cuts.

For modern conservatism and the country, the importance of Starve the Beast is impossible to overstate. Suddenly Republicans could offer both lower taxes and smaller government without any need for fiscal dentistry. Suddenly it was the Democrats who were trapped. From then to now, tax cutting has been the lodestar of conservatism, rising to its apogee under the current President Bush. But there have always been dissenting voices, of which perhaps the most prominent speaks from within the conservative movement.

When Diogenes searches Washington, D.C., for an honest man, he could do worse than carry his lantern to the office of William A. Niskanen, the chairman of the libertarian Cato Institute. Niskanen’s wall displays portraits of Isaac Newton, Adam Smith, and Charles Darwin, each captioned ORDER WITHOUT DIRECTION. Apart from the floor and a writing desk, every horizontal surface, including the window sill, is stacked a foot high with files and reports. At six feet four inches and of military bearing, with a thatch of white hair and an austerely professorial manner, the seventy-three-year-old Niskanen seems to glide above political Washington.

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Jonathan Rauch is a correspondent for The Atlantic and a guest scholar at the Brookings Institution.