Liberals are touting a study by, of all people, William Niskanen of the Cato Institute. Niskanen is trying to test the theory, held by many conservatives, that tax cuts “starve the beast”—in other words, that they lead to spending cuts. He looked at spending and taxes as a percentage of the economy over the last 25 years. He finds that years in which taxes were low also tended to be years in which spending was high, and vice versa. This is an interesting finding, but it is hardly the slam-dunk case against conservatives that liberals are claiming it is. While Niskanen has accounted for the effects of the business cycle, he has not taken account of the possibility that tax cuts cause spending cuts after a few years. It may be, for example, that Ronald Reagan’s tax cuts helped doom Bill Clinton’s push for socialized medicine. And even if it were the case that tax cuts do not, by themselves, make it easier to cut spending, that would hardly negate the economic case for cutting taxes that punish saving, investment, and work. It would only prove that there is no easy way to get a welfare state to reduce spending. And that is something that unhappy experience should already have taught us.
That’s from this week’s edition of Window on the Week. Read it all here .