The Most Pernicious Fiscal Policy You’ve Never Heard Of

Many conservatives have for decades been following a fiscal strategy called ‘starve the beast’, which argues that in order to shrink the size of government and lower spending, Republicans should cut taxes to enlarge deficits that will then force future spending cuts. As its name suggests, the theory views the government as a ‘beast’ that needs to be ‘starved’ to bring it down to a preferred level. Besides being objectionable for its absurd accelerationist logic - deliberately defunding the government to generate crises that will somehow benefit other policy goals - it simply does not work. Tax cuts do not lead to future spending cuts, but just do exactly what they were made to do: defund the government. Responsible fiscal policy requires fixing taxes to match a desired level of spending, not crashing government spending to meet a fixed level of taxes.

Trump shakes Paul Ryan’s hand after the 2017 Tax Cuts and Jobs Act was passed. Source: https://www.americanprogress.org/article/second-round-house-gop-tax-cuts-massive-long-run-cost/

Two things are certain in politics: death and tax cuts. It is usually presumed that the latter are argued on the basis of heightened economic growth, tax fairness, or tax simplicity. But there is another reason, held by some but not all of the conservative movement, that is both strong in its adherence and blatantly pernicious in its motives. The ‘Starve the Beast’ theory argues that conservatives should cut taxes to increase the deficit and trigger a backlash large enough that it would ultimately restrain government activity. In other words, the government is a beast that must be starved of its resources if it is to get smaller. Outside of failing in its own goals - tax cuts historically have been associated with increased spending that is only restrained by future increased taxes - Starve the Beast misconstrues proper governance and has dramatically harmed the American fiscal situation.

Before going into the problems of the theory, it would be best to explain its role in the conservative movement and why some adhere to it. The theory is best described by an analogy exposited by Milton Friedman:

“How can we ever cut government down to size? I believe there is one and only one way: the way parents control spendthrift children, cutting their allowance. For governments, this means cutting taxes. Resulting deficits will be an effective—I would go so far as to say, the only effective—restraint on the spending propensities of the executive branch and the legislature. The public reaction will make that restraint effective” (Niskanen 2006).

This analogy between a parent and their extravagant child is the bread and butter of Starve the Beast theory, so much so that Ronald Reagan directly used it in a 1980 presidential debate against independent John Anderson (Mallaby 2006). It did not begin and die with Reagan, however, as in 2001 President Bush called his tax cut plan a “fiscal straightjacket” for Congress (Bush 2001), and economist Gary Becker promoted the theory (Niskanen 2006). Ultimately, the theory is attractive because it says that conservatives can have their cake and eat it too: they need not worry about major deficits caused by tax cuts because they will also reduce disliked government spending after the voters restrain politicians.

Unfortunately, the theory is too good to be true, as it faces problems on logical, political, and empirical fronts. First, as is pointed out by centre-right economist Jessica Riedl, lowering taxes lowers the immediate price voters pay for government spending, meaning that the government can finance spending without having to make voters immediately pay for it (Riedl 2018). In this sense, there probably will not be a public backlash to having their after-tax income rise while also receiving the same level of social services. Second, on a political level, the theory is quite unrealistic. The same politicians that cut taxes cannot with a straight face go to the voters and argue that due to deficits they somehow ‘did not help’ create, the voters need to lower the services that they receive. Both focus groups with voters after the 2017 TCJA (Riedl and Pope 2024) and private discussions between legislators and their advisors (Riedl 2018) indicate that spending cuts are unreasonable to voters if they come from politicians who defund those services. 

These problems are more theoretical in nature; nonetheless, Starve the Beast also fails in practice. There have been three major recent attempts at tax cuts by conservative politicians: the 1981 Reagan tax cuts, the 2001 Bush tax cuts, and the 2017 Trump tax cuts. The former was followed by major rises in military spending and little cuts in other areas, the sum total resulting in a major rise in the debt levels that resulted in the fiscal austerity of the 1990s. Indeed, instead of cutting the government’s allowance, tax cuts gave the government a credit card, and the problem was only fixed with the H.W. Bush and Clinton tax hikes in the early 90s, along with various spending reforms. Similarly, the 2001 Bush cuts were followed by increased military spending, increased welfare spending on Compassionate Conservative policies like Medicare Part D, and other programs. Finally, the Trump cuts were followed by continual rises in the deficit and a 13% increase in discretionary spending in a single year, the largest increase in roughly under a decade at the time (Riedl 2024). 

Two papers, one by William Niskanen, a former Reagan economic advisor, and another by Christina and David Romer, both confirm that tax cuts are statistically associated with more spending and that tax increases are what are paired with spending reduction. The first is a bit simple in that it conducted regressions based on data from the 80s and 90s after controlling for a variety of variables, such as the unemployment rate (Niskanen 2006). To control for omitted variable bias and reverse causation, the second paper used a more sophisticated approach and came to the same conclusion (Romer and Romer 2007). 

This makes sense: when spending is more directly expensive, voters may demand less of it. Moreover, to make sure that tax hikes are politically appealing to conservatives, they are often paired with spending cuts as part of a bipartisan deal. On a more general level, prudent fiscal policy requires first determining what the government should do and then financing it in the most equitable and efficient way. Starve the Beast theory puts this in reverse: first, determine how little the government should have as resources and then let politics determine what is kept and what is removed. By at least partially following this course of thought, the tax cut packages of the past 40 years have helped raise the debt. On a variety of fronts, the theory needs to be starved of its adherence.

References

Mallaby, Stephen. “Don’t Feed the Beast”. Washington Post. 8 May 2006. https://www.washingtonpost.com/wp-dyn/content/article/2006/05/07/AR2006050700924.html

Niskanen, William. “Limiting Government: The Failure of ‘Starve the Beast’”. Cato Journal, Vol. 26, No. 3 (Fall 2006). https://web.archive.org/web/20110111123817/http://www.cato.org/pubs/journal/cj26n3/cj26n3-8.pdf 

Riedl, Jessica. “The GOP's Spending Blowout Invalidates 'Starve the Beast' Tax Cuts”. Washington Examiner. 15 March 2018. https://manhattan.institute/article/the-gops-spending-blowout-invalidates-starve-the-beast-tax-cuts 

Riedl, Jessica. “Correcting the Top 10 Tax Myths”. Manhattan Institute. 12 December 2024. https://manhattan.institute/article/correcting-the-top-10-tax-myths#notes

Riedl, Jessica and Pope, Chris. “Can We Starve the Beast?”. Manhattan Institute. 31 May 2024. https://www.city-journal.org/article/can-we-starve-the-beast 

Romer, Christina and Romer, David. “Do Tax Cuts Starve The Beast? The Effect of Tax Changes On Government Spending”. National Bureau of Economic Research. Working Paper 13548. October 2007. https://www.nber.org/system/files/working_papers/w13548/w13548.pdf 

“Remarks by the President and Secretary Rumsfeld in Announcement of Chairman and Vice-Chairman of the Joint Chiefs of Staff”. Office of the Press Scretary. 24 August 2001. https://georgewbush-whitehouse.archives.gov/news/releases/2001/08/20010824.html