“Starving the Beast” by John Edward
John Edward, a resident of Chelmsford who earned his master’s degree at UMass Lowell and who teaches economics at Bentley University and UMass Lowell, contributes the following column.
Does the high cost of housing, fuel, and health care strain your budget? Here is an idea for you. Just spend like crazy and load up lots of debt. That way you will eventually strain your budget so much you will be less likely to waste money on heating oil or medicine you could do without.
It sounds like a foolish idea. Yet, it may also sound like what our government has been doing. In fact, some in Washington have advocated just such an approach to managing our money. Proponents call it “starving the beast.”
Grover Norquist, a tax policy advisor for President Reagan, is often credited with coining the phrase. He said his goal was to shrink government so much that he would then be able to “drown it in a bathtub.”
Others credit David Stockman, Budget Director under Reagan, who was the first to go on record – admitting that starving the beast was policy. He came clean only after leaving office, and he eventually repudiated much of Reaganomics in general. Yet, just a few months ago, in a speech delivered in Boston, Sarah Palin pleaded, “Please, starve the beast!”
The policy is deviously simple. Allow, even encourage, the federal government to run a large deficit. Build up the national debt. Eventually, a day of reckoning will occur, and the government will have to cut back on “wasteful” social programs.
Starving the beast provides cover for program cuts that would otherwise appear uncompassionate. The policy relies on the illusion of fiscal responsibility because it promotes the deficits primarily via tax cuts. The tax cuts, given primarily to corporations and the wealthy, are offered under the false premise that they will promote economic growth.
Tax cuts are not effective for stimulating economic growth. Furthermore, studies by both the National Bureau of Economic Research and the conservative Cato Institute show that tax cuts tend to lead to more government spending, because in the short run borrowing is less painful than taxes.
Just a few years ago, people were writing of starve the beast as a failure. David Stockman went on PBS to say, “it does not work.” However, recent public policy developments show that starve the beast advocates might now be getting what they always wanted.
Recently, President Obama unveiled his proposed fiscal year 2012 budget that included many “tough decisions” and painful cuts. People who need fuel assistance to heat their home would feel the pain. Even Senator Scott Brown, who knows what cold-weather state he represents, opposes a $2.5 billion cut in home heating assistance.
The President would cut Community Service Block Grants in half. That is a very tough decision for people who benefit from many social service programs.
In 2009, I invited President-elect Obama to Lowell because he said he understood the problems facing urban centers. Now he is proposing to cut the budget for the Department of Housing and Urban Development by over 15 percent.
At a time when jobs and affordable housing are hard to find, the President is proposing cuts in job training and public housing subsidies. He wants to eliminate Pell grants for College students trying to accelerate their education by taking summer courses.
Governor Patrick is making his own “difficult, and in some cases, painful choices” in Massachusetts. Although the Governor listed better schools as a priority, his proposed budget imposes large cuts on higher education and school health services. He wants to slash early intervention programs for children with disabilities by more than 25 percent.
The Governor says he has a plan to help the homeless find permanent housing. It had better work. He is proposing to cut funding for homeless shelters by 14 percent.
In cities like Lowell, the beast has been starved by both reductions in state and federal aid, as well as spiraling health-care costs. City Manager Bernie Lynch has been making tough choices. The proposed cuts to the Community Block Grant program will impact a wide variety of programs, from building up city parks to tearing down condemned buildings as well as programs for the homeless, hungry, or just plain poor. The Lowell Sun quoted Assistant City Manager Adam Baacke as saying the cuts would “have a serious impact on cities like Lowell across the country and their low- and moderate-income residents in particular.”
There is a reason why President Obama, Governor Patrick, and City Manager Bernie Lynch find these cuts painful. These are programs that matter – that make a big difference in people’s lives. They are only wasteful if you think providing a safety net for those hardest hit by our economy is a waste.
Former Republican Senator Alan Simpson, co-chair of the President’s Debt Commission, recently stated that the President’s proposed cuts to social programs are unwise and unnecessary. The cuts are unwise because the government has an important role to play in promoting the social welfare. They are unnecessary because the cuts are a very small portion of federal spending.
We allowed ourselves to get into a situation where significant deficit reduction measures will be necessary in the coming years. The debt commission has offered concrete suggestions for real budget reform. Examples include cutting defense spending, delaying retirement under social security, and eliminating wasteful tax exemptions and deductions.
Ed Markey, US Representative from Massachusetts, said he is surprised the President would recommend “a 50 percent cut in programs for the poor without also dramatically slashing the defense budget and proposing tax increases on the wealthy.” Starving the beast is not causing meaningful deficit reduction. The effect is just mean.
A recent Pew Research poll showed that an overwhelming majority wants the government to cut spending. The same poll also revealed that not a single program was favored for cutting by a majority. Our elected leaders are making these hard choices. Now is the time to tell them what you want cut, and what you want preserved. Until then, starving the beast may rule the day.
2 Responses to “Starving the Beast” by John Edward
John, you’re spot on with this observation:
“Tax cuts are not effective for stimulating economic growth. Furthermore, studies by both the National Bureau of Economic Research and the conservative Cato Institute show that tax cuts tend to lead to more government spending, because in the short run borrowing is less painful than taxes.”
I’m not sure if there are 10 people in Congress who understand this. Tax cuts will only be effective for growth if the current rates are too high–whatever that magic number may be. Clearly, current taxation levels are not high enough given the size of the budget. Whenever I hear some Reaganomist say that we need to cut corporate tax rates, I want to rearrange his face into a Picasso painting because corporations are notorious tax dodgers. (The most egregious example might be Bank of America, a TARP beneficiary, that paid no taxes in 2009 and 2010.)
“Tax cuts will only be effective for growth if the current rates are too high–whatever that magic number may be.”
It is interesting to look back at the top marginal rates and connect them to the economies of the times.
In the 1920s the top marginal rate was reduced to 25% – a pre-cursor to the Great Depression?
In the 1960s the “Kennedy” tax cuts so often cited by current-day “trickle-downers” reduced the top rate from 91% to 77%!
Today’s top rate of 35% closer to the 1920s, but the real problem is the many special interest tax laws that further avoid taxes, such as the provision that allows Hedge Fund managers to have the majority of their income taxed at a 15% rate.
So maybe 35% should be 39.6%, but the larger issue is the many tax loopholes that have been built into the federal tax code.