Christina Romer and David Romer have looked at spending and tax changes since 1947 in three papers. They found, not surprisingly, that tax increases hamper economic growth and those not targeted to deal with persistent deficits are more harmful.
More importantly, they found that tax cuts do not “starve the beast.” In other words, we have a spend and tax government. Or, as they put it, “[W]hat typically gives in response to a tax cut is not spending but the tax cut itself.“
The Romers examined tax cuts and later budget policies under Truman, Johnson, Reagan, and Bush (43). Some key passages from their paper:
[Truman’s] view was that spending should be determined by the country?s needs, and taxes adjusted accordingly. For example, in his budget message in January 1951, Truman described the spending side of the budget and then stated, ?I shall shortly recommend an increase in tax revenues in the conviction that we must attain a balanced budget to provide a sound financial basis for what may be an extended period of very high defense expenditures? (1952 Budget, p. M6). page 31
…
The [Johnson] administration believed that spending should be determined by necessity and efficiency. … The narrative record in this episode is striking in the degree to which revenues were not mentioned as a determinant of expenditures.
Finally, for those who argue something like, “If you are concerned about federal spending, then you should vote Democratic. Republicans have become the party of fiscal waste and crazy spending,” it might be worth considering Lyndon Johnson’s comments in his 1966 State of the Union address:
There are men who cry out: We must sacrifice. Well, let us rather ask them: Who will they sacrifice? Are they going to sacrifice the children who seek the learning, or the sick who need medical care, or the families who dwell in squalor now brightened by the hope of home? ? I believe that we can continue the Great Society while we fight in Vietnam (Annual Message to the Congress on the State of the Union, 1/12/66, p. 2).
“Spending is the problem ? not taxes ? and spending must be cut.” – Ronald Reagan’s 1986 budget message
