From a Paul Krugman column in 2003:
Supply-Siders, Starve-the-Beasters and Lucky Duckies
It is often hard to pin down what antitax crusaders are trying to achieve. The reason is not, or not only, that they are disingenuous about their motives -- though as we will see, disingenuity has become a hallmark of the movement in recent years. Rather, the fuzziness comes from the fact that today's antitax movement moves back and forth between two doctrines. Both doctrines favor the same thing: big tax cuts for people with high incomes. But they favor it for different reasons.
One of those doctrines has become famous under the name ''supply-side economics.'' It's the view that the government can cut taxes without severe cuts in public spending. The other doctrine is often referred to as ''starving the beast,'' a phrase coined by David Stockman, Ronald Reagan's budget director. It's the view that taxes should be cut precisely in order to force severe cuts in public spending. Supply-side economics is the friendly, attractive face of the tax-cut movement. But starve-the-beast is where the power lies.
The starting point of supply-side economics is an assertion that no economist would dispute: taxes reduce the incentive to work, save and invest. A businessman who knows that 70 cents of every extra dollar he makes will go to the I.R.S. is less willing to make the effort to earn that extra dollar than if he knows that the I.R.S. will take only 35 cents. So reducing tax rates will, other things being the same, spur the economy.
This much isn't controversial. But the government must pay its bills. So the standard view of economists is that if you want to reduce the burden of taxes, you must explain what government programs you want to cut as part of the deal. There's no free lunch.
What the supply-siders argued, however, was that there was a free lunch. Cutting marginal rates, they insisted, would lead to such a large increase in gross domestic product that it wouldn't be necessary to come up with offsetting spending cuts. What supply-side economists say, in other words, is, ''Don't worry, be happy and cut taxes.'' And when they say cut taxes, they mean taxes on the affluent: reducing the top marginal rate means that the biggest tax cuts go to people in the highest tax brackets.
The other camp in the tax-cut crusade actually welcomes the revenue losses from tax cuts. Its most visible spokesman today is Grover Norquist, president of Americans for Tax Reform, who once told National Public Radio: ''I don't want to abolish government. I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub.'' And the way to get it down to that size is to starve it of revenue. ''The goal is reducing the size and scope of government by draining its lifeblood,'' Norquist told U.S. News & World Report.
What does ''reducing the size and scope of government'' mean? Tax-cut proponents are usually vague about the details. But the Heritage Foundation, ideological headquarters for the movement, has made it pretty clear. Edwin Feulner, the foundation's president, uses ''New Deal'' and ''Great Society'' as terms of abuse, implying that he and his organization want to do away with the institutions Franklin Roosevelt and Lyndon Johnson created. That means Social Security, Medicare, Medicaid -- most of what gives citizens of the United States a safety net against economic misfortune.
The starve-the-beast doctrine is now firmly within the conservative mainstream. George W. Bush himself seemed to endorse the doctrine as the budget surplus evaporated: in August 2001 he called the disappearing surplus ''incredibly positive news'' because it would put Congress in a ''fiscal straitjacket.''
Like supply-siders, starve-the-beasters favor tax cuts mainly for people with high incomes. That is partly because, like supply-siders, they emphasize the incentive effects of cutting the top marginal rate; they just don't believe that those incentive effects are big enough that tax cuts pay for themselves. But they have another reason for cutting taxes mainly on the rich, which has become known as the ''lucky ducky'' argument.
Here's how the argument runs: to starve the beast, you must not only deny funds to the government; you must make voters hate the government. There's a danger that working-class families might see government as their friend: because their incomes are low, they don't pay much in taxes, while they benefit from public spending. So in starving the beast, you must take care not to cut taxes on these ''lucky duckies.'' (Yes, that's what The Wall Street Journal called them in a famous editorial.) In fact, if possible, you must raise taxes on working-class Americans in order, as The Journal said, to get their ''blood boiling with tax rage.''
So the tax-cut crusade has two faces. Smiling supply-siders say that tax cuts are all gain, no pain; scowling starve-the-beasters believe that inflicting pain is not just necessary but also desirable. Is the alliance between these two groups a marriage of convenience? Not exactly. It would be more accurate to say that the starve-the-beasters hired the supply-siders -- indeed, created them -- because they found their naive optimism useful.
A look at who the supply-siders are and how they came to prominence tells the story.
The supply-side movement likes to present itself as a school of economic thought like Keynesianism or monetarism -- that is, as a set of scholarly ideas that made their way, as such ideas do, into political discussion. But the reality is quite different. Supply-side economics was a political doctrine from Day 1; it emerged in the pages of political magazines, not professional economics journals.
That is not to deny that many professional economists favor tax cuts. But they almost always turn out to be starve-the-beasters, not supply-siders. And they often secretly -- or sometimes not so secretly -- hold supply-siders in contempt. N. Gregory Mankiw, now chairman of George W. Bush's Council of Economic Advisers, is definitely a friend to tax cuts; but in the first edition of his economic-principles textbook, he described Ronald Reagan's supply-side advisers as ''charlatans and cranks.''
It is not that the professionals refuse to consider supply-side ideas; rather, they have looked at them and found them wanting. A conspicuous example came earlier this year when the Congressional Budget Office tried to evaluate the growth effects of the Bush administration's proposed tax cuts. The budget office's new head, Douglas Holtz-Eakin, is a conservative economist who was handpicked for his job by the administration. But his conclusion was that unless the revenue losses from the proposed tax cuts were offset by spending cuts, the resulting deficits would be a drag on growth, quite likely to outweigh any supply-side effects.
But if the professionals regard the supply-siders with disdain, who employs these people? The answer is that since the 1970's almost all of the prominent supply-siders have been aides to conservative politicians, writers at conservative publications like National Review, fellows at conservative policy centers like Heritage or economists at private companies with strong Republican connections. Loosely speaking, that is, supply-siders work for the vast right-wing conspiracy. What gives supply-side economics influence is its connection with a powerful network of institutions that want to shrink the government and see tax cuts as a way to achieve that goal. Supply-side economics is a feel-good cover story for a political movement with a much harder-nosed agenda.
This isn't just speculation. Irving Kristol, in his role as co-editor of The Public Interest, was arguably the single most important proponent of supply-side economics. But years later, he suggested that he himself wasn't all that persuaded by the doctrine: ''I was not certain of its economic merits but quickly saw its political possibilities.'' Writing in 1995, he explained that his real aim was to shrink the government and that tax cuts were a means to that end: ''The task, as I saw it, was to create a new majority, which evidently would mean a conservative majority, which came to mean, in turn, a Republican majority -- so political effectiveness was the priority, not the accounting deficiencies of government.''
In effect, what Kristol said in 1995 was that he and his associates set out to deceive the American public. They sold tax cuts on the pretense that they would be painless, when they themselves believed that it would be necessary to slash public spending in order to make room for those cuts. |
