"It is the death of humanity to know the price of everything but the value of nothing." ~Unknown

Sunday, October 24, 2010

Starving The Beast

Government is Good - Starving The Beast

Starving The Beast

"We're not talking about minor policy adjustments,” says Paul Krugman. “If taxes stay as low as they are now, government as we know it cannot be maintained."

The large tax cuts promoted by the right-wing are intentionally designed to force government to cut back severely on social spending.

For decades, a key part of the anti-government agenda of conservatives has been to cut spending on social programs. Their targeted programs have included: health care for the elderly and poor, welfare and food stamps, military retirement, drug abuse centers, unemployment compensation, aid to education, college student loans, nursing homes, employment training, childcare centers, housing subsidies for the elderly and disabled, and school nutrition. They believe that these programs have grown too large and cost taxpayers to much money.

But attacking social spending has not been easy. Most Americans think that these programs do a lot of good and do not want to see them cut. Indeed, as another article on this site points out, most of us want the government to actually spend more on education, retirement, and health care – not less.
So Republicans have developed a tactic for attacking social spending that they hope will not trigger the ire of the public – an indirect attack on these programs. The tactic? Tax cuts. The idea is simple: if we keep cutting taxes, eventually there won’t be enough money to spend on these social programs and they will have to be reduced. They call this tactic “starving the beast.” Taxes are what nourish government, and so if that source of nourishment is taken way, government must inevitably shrink. For anti-tax advocates like Grover Norquist, this is the ultimate purpose of tax cuts: “The goal is reducing the size and scope of government by draining its lifeblood.”1

Milton Friedman, the arch-conservative economist, speaking of ways to limit or reduce the size of government, offered this prescription: “How can we ever cut government down to size? I believe there is only one way: the way parents control spendthrift children, cutting their allowance. For the government, that means cutting taxes. Resulting deficits will be an effective – I would go as far as to say, the only effective – restraint on the spending propensities of the executive branch and the legislature.”2

So underneath all the Republican rhetoric about cutting taxes – all the talk about stimulating the economy and giving money back to hardworking Americans, there is another, deeper political goal: to strangle government social programs. But this is rarely discussed publicly. Conservatives focus the public’s attention on what they will gain from the tax cuts, not what they will lose by reducing social programs.

This strategy was first tried in the Reagan administration. He came into office in 1980 promising to balance the federal budget. But he quickly cut taxes and raised military spending, creating huge budget deficits. (Sound familiar?) This made little sense to many people at the time and was not understood until Reagan’s budget advisor, David Stockman, later revealed that this was a conscious effort to “starve the beast” – a phrase he is reputed to have coined.3 The idea was to put increasing financial pressure on social programs in order to make it easier to cut them. And indeed, it had some effect, with domestic discretionary spending falling from 4.5% of the economy in 1981 to 3.3% in 1988.3

A series of massive tax cuts during the George W. Bush administration revived this strategy and implemented it in a much more extensive way. These tax cuts cost the federal government over two trillion dollars ($2,000,000,000,000) in lost revenue from 2001 to 2010 alone.5 As economist Paul Krugman observed at the time, “‘starving the beast’ is no longer a hypothetical scenario. It’s happening as we speak. For decades, conservatives have sought tax cuts, not because they’re affordable, but because they aren’t.”6

The Goal: Massive Cuts in Social Programs

So what kinds of drastic cuts in government social programs are conservatives really after? To see, we need only look at the 2007 budget proposal made by President Bush. His proposal covered budget goals for the five years from 2007 to 2011. Bush targeted programs such as education, housing, job training, environmental protection, community development, and children’s services for $221 billion in cuts. These would have been severe and unprecedented reductions in these programs. But it is important to see that these kinds of cuts in discretionary spending, whether they were in education or environmental protection, were only part of the starving-the-beast strategy. Anti-government activists were also out for much bigger game: cuts in mandatory spending for the large entitlement programs like Social Security, Medicare, and Medicaid. These programs form the bulk of federal spending and they were the ultimate targets. The President’s 2007 proposal also hacked away at this kind of mandatory spending – detailing $65 billion in cuts for these programs. This included $36 billion to be taken from Medicare programs and $14 billion for Medicaid. Over $650 million would also have been cut from Food Stamps, thus denying them to over 300,000 people in working families.7

But as draconian as these proposed cuts were, they paled in comparison to the budget reductions being demanded that same year by some Republicans in Congress. The Republican Study Committee, a group of conservatives members of the House of Representatives, proposed to establish an “entitlement cap” that would have limited the total federal expenditures for entitlement programs other than Social Security. This cap would have required that projected entitlement spending be slashed by $1.8 trillion over the next ten years. That translates into $766 billion cut from Medicare, $405 billion from Medicaid, $114 billion from federal civilian retirement and disability, $66 billion from military retirement and disability, $63 billion from unemployment compensation, and $50 billion from food stamps.8 The Committee argued that these program cuts were necessary for the “restoration of the American dream.” They were obviously not taking into account the dreams of the elderly, the sick, the disabled, the jobless, and the poor who would have to pay the price for these truly staggering reductions in federal programs.

Ironically, despite having advocated such deep cuts in spending, these conservative budget plans would have done little or nothing to reduce the deficit because they included a new round of large tax cuts – $1.7 trillion in new tax reductions in the case of the President’s budget.

The Deficit Trap

There is an obvious problem with this starving the beast strategy. On the federal level, cutting taxes does not necessarily require spending cuts: the government may simply borrow money and increase its debt to continue spending. And this is exactly what happened during the Bush administration. Along with his tax cuts, Bush also oversaw some large increases in government spending – mostly in the area of defense. The wars in Iraq and Afghanistan cost an estimated 900 billion dollars between 2001 and 2009. This combination of increased spending and huge tax cuts caused budget deficits to soar during the Bush years. This led some conservatives to complain that Bush had abandoned the idea of limited government. David Brooks concluded in one of his New York Times columns that all this spending and the growing deficits heralded “the death of small government conservatism.”9

But these accusations were misplaced. They ignored one key fact: growing deficits were entirely consistent with the long-term plan to reduce government. The hope was that soaring deficits and a rapidly growing national debt would eventually force policymakers to reduce government spending – whether they liked it or not. From its very first days, the Bush administration embraced deficits as a good way to reign in government. In August of 2001, as the federal budget surpluses began to disappear and new deficits began to loom, the president had an unusual fit of candor and described these developments as "incredibly positive news," arguing that this would now put Congress in a "fiscal straitjacket." Ten Republicans in Congress also came around to this point of view. As conservative Rick Santorum explained it, he first hated deficits, but then came to like them because they made it harder to pass any new spending bills. “I came to the House as a real deficit hawk but I am no longer a deficit hawk. I’ll tell you why. …Deficits make it easier to say no.”11

Clearly if the Republicans had remained in power in Washington and their program of massive tax cuts had continued, deeper reductions in spending for mandatory programs, even including Social Security, would eventually have become inevitable. Deficits and public debt simply cannot continue to grow forever. At some point, the federal government eventually has to start paying its bills. As Paul Krugman has explained, the crunch would most like come when baby boomers begin to retire and start making increasing demands on the Social Security and Medicare systems. At that point, the gap between the government’s income and its outlays would become alarmingly large. The government would have no choice but to either rapidly raise taxes or drastically cut spending. Given the difficulty of raising taxes, the most likely scenario – and the one anti-government conservatives would favor – would be for government to dramatically slash spending. "We're not talking about minor policy adjustments,” says Krugman. “If taxes stay as low as they are now, government as we know it cannot be maintained."12 He predicts that we could experience cuts of up to 40% on some of the largest government programs: "Social Security will have to become far less generous; Medicare will no longer be able to guarantee comprehensive medical care to older Americans; Medicaid will no longer provide basic medical care to the poor."13

When the Democrats took control of the White House and Congress in 2008, it seemed that finally the tax cuts and the attacks on social spending would stop – which did in fact occur. But the huge deficits and growing national debt of the Bush era continue to act as a “fiscal straightjacket” for the Democrats and have been preventing them from increasing funding for badly needed programs. The Center for Budget and Policy Priorities has estimated that the Bush-era tax cuts and the costs of his wars in Iraq and Afghanistan will contribute more the $500 billion to the fiscal 2012 budget deficit alone -- making up over 50% of that shortfall. Those wars and tax cuts will eventually contribute a whopping $7 trillion to federal deficits by 2019. To make matters worse, the severe recession that started in 2008 greatly reduced federal revenue and required a surge in spending for an economic stimulus package – all of which contributed even more to already large yearly deficits.

The Republicans, who seemed totally unconcerned about racking up huge deficits during the Bush administration, are now screaming that reducing spending and the deficits must be our number one priority. And they have been successful in convincing many moderate Democrats in Congress to go along with them.

In reaction to the deficits, President Obama first proposed a three year freeze on most domestic spending. Then he requested that all federal agencies lower their fiscal 2012 budget requests by at least 5% from their 2011 funding – an idea that pleased many Republicans. While 5% may seem like a small reduction, keep in mind that many of these regulatory agencies have already been suffering for years from inadequate funding and staff cuts imposed during the Bush administration.

Unless Democrats are willing to raise taxes – and many are reluctant to do so – there is a good chance that the “starving the beast” strategy of the anti-government movement will succeed. It will strangle any efforts to create new programs and to increase funding for needed social programs and important regulatory agencies. Eventually it may even create a fiscal crisis that will require large cuts in crucial safety net programs like Medicaid and Medicare. A very worrying situation to say the least.

Starving the States

Today, conservatives remain in control of many state and local governments. And it is on this level that we see the most dramatic effects of the starving-the-beast strategy. In large part, this is due to an enormous advantage that anti-government activists have on these levels of government: virtually all states and cities must balance their budgets. So when revenues fall or expenses increase, these governments cannot borrow to make up the difference; they must either cut programs or raise taxes. Conservatives have often been successful in blocking tax increases, which has meant that states have had no choice but to reduce spending on social programs.

During the recession that began in 2008, most states cut their social spending – often in disturbing ways. Many of these cuts fell on these states’ most vulnerable residents. Several states cut reimbursements to nursing homes or made it more difficult for the elderly to qualify for nursing home care. Twenty-one states implemented cuts that restricted low income children’s access to health insurance. Services for the elderly and disabled were cut in 22 states. Educational spending also took big hits, with state aid for K-12 education reduced in 24 states. Funds were also cut for higher education in 32 states, forcing some to raise tuition by more than 10%. 14

Clearly, the decline in state revenues caused by the recession played a large role in these budget cuts. But that is not all that was going on. Many states have had ongoing fiscal problems, and in many cases those problems have been caused or exacerbated by conservative forces who have attacked the abilities of states and local governments to raise needed taxes. For example, the foundations for many states’ fiscal problems were laid in the 1990s when state-level anti-government groups waged successful campaigns to reduce taxes. Between 1994 and 2001, under political pressure from conservatives, 44 states passed significant tax cuts. The effects of these cuts were masked at first by the stock market boom that increased the states’ returns on investments in the late 1990s. But now, with the stock market boom long gone, those cuts have come home to roost and are costing the states an estimated $40 billion or more a year in lost revenue – a significant cause of the long-term fiscal difficulties in many states.15

Conservatives have also been successful in many states in installing caps on certain tax rates. In Massachusetts, for example, local property taxes cannot be increased by more than 3.5% a year. In many years, city expenses have risen faster than that rate and tax revenues have not kept up. This has forced many cities to repeatedly cut public school budgets – firing teachers, reducing course offerings, eliminating sports, and increasing class sizes. Cities have also been forced to reduce fire and police staffing and limit essential public services like snow plowing and road repair.

Fourteen states also now require supermajorities for the raising of some taxes – and this has become particularly problematic. Supermajorities require that 60%, 67%, or even 75% of the legislators must agree before taxes can be raised – rather than the simple majority of 50% plus one that applies to other kinds of legislation. This allows a anti-tax minority to block majority rule. In some states, for instance, a majority of citizens in local school districts have often voted to raise taxes to help fund education – but they have been frustrated because they couldn’t marshal the needed two-thirds majority. Statutory requirements like supermajorities and tax caps are the some of the best political weapons used by anti-government forces because they make it all but impossible to raise taxes and this forces state and local governments to cut spending on programs.

Making matters even worse, conservatives are now pushing efforts to establish constitutional caps on state government expenditures – plans that would limit spending growth to the rate of inflation plus population growth. The first state to adopt this approach, Colorado in 1992, saw its public services deteriorate significantly. For example, it dropped from 35th to 49th in K-12 spending as a share of personal income, and from 35th to 48th in higher education funding a as share of personal income.16 In 2005, citizens in Colorado voted to suspend this amendment for five years so that they can restore needed funding to vital services. The disastrous results in Colorado have not stopped anti-government activists from launching campaigns to pass similar amendments in 15 other states.

The Case of California

The severe and ongoing budget problems in California are a good example of the kind of damage that anti-government activists can do on the state level. During the recent recession, the state ran into billions of dollars of deficits and was forced to make draconian cuts in state programs and services. The main problem was not excessive spending but excessive restrictions on the taxing ability of the state, which made it all but impossible for it to raise taxes to deal responsibly with its fiscal crisis.

The problems for California began decades ago when obstacles to tax increases were introduced into the state constitution by an anti-tax campaign. Proposition 13 was passed in 1978 and capped property taxes at ridiculously low levels. Cities and counties were then forced to try to raise other assessments and fees in order to continue to supply basic public services. But anti-tax zealots were then able to pass Proposition 218, which prevented cities from raising those fees without the approval of two-thirds of the voters – usually an impossible barrier to overcome.

This left localities no choice but to go begging to the state government for needed revenues. But Proposition 13 actually worked to restrict this source of funds as well. It mandated that the state could not increase taxes without the approval of two-thirds of both houses of the legislature. This anti-democratic arrangement has allowed a minority of tax-hating lawmakers to frustrate the majority and consistently block any efforts to raise needed revenues.

Faced with these anti-tax restrictions, the state had no choice but to institute a series of very damaging cuts in state services. Severe cuts were made in aid to K-12 school systems. California’s public schools already ranked 34th among the states in per-pupil expenditures and 49th in teacher-student ratio – a disgraceful situation that could only be worsened by new budget cuts. Millions of children have been denied medical coverage. Large cuts have also been made in many other essential programs, including mental health services, mass transit, home health care, food stamps, prisons, and aid to the blind and disabled. State colleges and universities have become more expensive and less accessible.

The Effects of Starvation on Education and Infrastructure

Sometimes the effects of starving the beast are serious, but not immediately obvious. Some vital public sector programs have been reduced so gradually that the effects may not be clear to many in the public. Two examples of this are the effects of funding cuts on higher education and infrastructure development.

In recent years, spending for state higher education institutions has taken a hard hit. States have been cutting budgets for public colleges and universities – which produce three quarters of all degrees in the United States. Teaching positions are being cut, class sizes are spiraling, and needed maintenance is being neglected. Some colleges are now unable to provide students with the required courses they need to finish their degrees. In addition, states have been raising their tuitions and cutting financial aid. A study by the National Center for Public Policy and Higher Education gave the public college and university systems in 43 states a grade of “F” for affordability.17 This means that many low and middle-income students simply cannot afford college anymore – in one year alone a half million were turned away for lack of money.18

Crucial infrastructure spending is also being neglected. A study by the American Society of Civil Engineers found that America’s infrastructure is in terrible shape and blamed low levels of investment by state and federal governments. They estimated that over the next five years it would take at least $1.6 trillion to bring our national infrastructure into an acceptable state. 19 Some excerpts from the report:

Roads and transit systems are in peril. Funding at the federal, state and local levels is in danger of drying up and citizens are failing to invest in their communities' futures. The nation is failing to even maintain the substandard conditions we currently have, a dangerous trend that is affecting highway safety, as well as the health of the economy. … 27.5% of the nation's bridges (162,000) were structurally deficient or functionally obsolete. …The nation's 16,000 waste water systems face enormous needs. Some sewer systems are 100 years old and many treatment facilities are past their recommended life expectancy. Currently, there is a $12 billion annual shortfall in funding for these infrastructure needs. …Due to either aging, outdated facilities, severe overcrowding, or new mandated class sizes, 75% of our nation's school buildings remain inadequate to meet the needs of school children. While school construction spending has increased, the cost to remedy the situation remains more than $127 billion.

Clearly this failure to invest in our infrastructure has produced a looming crisis – one that can only be addressed with higher taxes and more spending on the state and federal level. But in 2006, the Republican Study Committee of the U.S. House of Representatives actually proposed that federal spending for highways, bridges, mass transit and other infrastructure development and repair be cut by $103 billion by 2011.

Seeing the wide spread negative effects – and human costs – of all of these cuts in services, programs, and investments on the state level, you might expect that conservatives would have second thoughts about their anti-tax and anti-spending policies. But amazingly, these kinds of problems have actually been welcomed by anti-government activists. Reports indicate that the Bush White House was happy to see states and their citizens caught in a fiscal crunch and forced to cut programs, and had no desire to help bail them out. Numerous administration officials stated privately that the states’ fiscal problems would play a useful role in shrinking state governments.20 And anti-tax activist Grover Norquist seemed almost gleeful about the fiscal troubles being faced by states, remarking that “I hope a state goes bankrupt.”21

There is an Alternative

It doesn’t have to be this way in state governments. In fact, it hasn’t always been this way. In the days before the anti-tax movement took hold in the U.S., many states had a vibrant public sector with healthy investments in infrastructure projects and adequately funded social programs for state residents. In his book, Paradise Lost, Peter Schrag offers the following descriptions of pre- and post-Proposition 13 California:

California was once widely regarded has both model and magnet for the nation – in its economic opportunities, its social outlook, and its high-quality public services and institutions. With a nearly free and universally accessible system of public higher education, a well supported public school system, an ambitious agenda of public works projects – in irrigation and flood control, in highway construction and park development – and a wide array of social services and human rights guarantees that had no parallel in any other state, California seems to have an optimism about its population, possibilities, and future....

But California ... is no longer the progressive model in its public institutions and services, or in its social ethic, that it once was. California's schools, which 30 years ago had been among the most generously funded in the nation, are now in the bottom quarter among the states in virtually every major indicator – in physical condition, in public funding, in test scores – closer in most of them to Mississippi than to New York or Connecticut or New Jersey. The state, which had almost doubled in population since the early 1960s, has built some 20 new prisons in the past two decades, but has not opened one new campus of the University of California for nearly three decades. Its once celebrated freeway system is now rated as among the most dilapidated road networks in the country. Many of its public libraries operate on reduced hours, and some have closed altogether. The state's social benefits, once among the nation's most generous, had been cut and cut again, and then cut again. And what had once been a tuition-free college and university system, while still among the world's great public educational institutions, struggles for funds and charges as much as every other state university system, and in some cases more.22

Schrag laments what he has termed the “Mississippication” of California. He has nothing against Mississippi, but is simply referring to the reputation that state has for stingy social programs, abysmal schools, inadequate health care programs, and a poor quality of life. This is what could be in store for all of us if government is reduced to an emaciated state. If the anti-government and anti-tax crusaders have their way, we will all be living in Mississippi, whether we want to or not.


For more on how anti-government activists have been attacking vital government programs, see Stealth Deregulation.

1 comment:

Pat said...

Men compelled to support religion with taxes is no different than men compelled to establish religion that is prohibited in the separation of church and state.

Forced to give and forced to speak are two entirely different things.
If government leaves no choice, is anyone really free?