"Following long-run tax cuts, government spending does not fall," they wrote in the Brookings Papers on Economic Activity. "Indeed, if anything, spending rises." In time, "tax cuts tend to lead to tax increases."
Tea partiers will not put much stock in the findings of scholars who hang out in notorious outposts of the counter-culture or in the Obama White House (assuming the two are not the same thing). They may find it harder to ignore University of Alabama political scientist Michael New, an adjunct scholar of the libertarian Cato Institute in Washington.
Writing in the Cato Journal, he reports that "federal expenditures grow faster when revenues are relatively low." Even nondefense discretionary spending -- which excludes military costs and fast-growing entitlements -- experiences a growth spurt when taxes are cut, according to New.
This really shouldn't be surprising. In the first place, cutting taxes doesn't deprive the government of funds as long as it can tap the credit markets on a vast scale. Locking up the ice cream does no good if there's an endless supply of burgers and fries.
In the second place, cutting taxes instead of spending is seductively pleasant. It lets citizens enjoy more government services at no extra cost on April 15.
Forced to pay for everything they get, right away, Americans would undoubtedly choose to make do with less. But given the opportunity to party now and pay later -- or never, if the tab can be billed to the next generation -- they find no compelling reason to do without.
Think of it this way. If you want people to consume more of something, you reduce the price. If you want them to consume less, you raise the price. For most of the last 30 years, federal programs have been on sale, and they've found lots of buyers.
That's how the low-tax strategy has worked in practice. So if we are going to reduce the size of the federal government, we can't rely on starving the beast. We will have to tackle it and wrestle it to the mat.
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