Jonathan Rauch’s Stoking the Beast in the Atlantic is deliciously ironic:
Niskanen recently analyzed data from 1981 to 2005 and found his hunch strongly confirmed. When he performed a statistical regression that controlled for unemployment (which independently influences spending and taxes), he found, he says, “no sign that deficits have ever acted as a constraint on spending.” To the contrary: judging by the last twenty-five years (plenty of time for a fair test), a tax cut of 1 percent of the GDP increases the rate of spending growth by about 0.15 percent of the GDP a year. A comparable tax hike reduces spending growth by the same amount.
Why? Perhaps because more government seems like a better deal when taxes are higher and vice versa. Those campaigning for small tax increases or decreases (any seen in the last 25 years) may wish to reexamine their strategies. I expect that really large and immediate changes would not be governed by this effect, as spending changes of similar magnitude would have to occur simultaneuously.
It is too bad tax rates are not explitly linked to spending. The only way to effect a tax cut should be to cut specific programs and the only way to fund specific programs should be to raise taxes.
Rauch’s article is justly getting attention, including many comments on the Washington Monthly website. That site discussed a slightly older version of the same data. The paper by William Niskanen and Peter Van Doren includes another intriguing observation (bold added, italics in original):
My brief article in 2003 presented evidence that the rate of growth of real federal spending in the years since World War II was lower during administrations in which at least one house of Congress was controlled by the other party. The only two long periods of fiscal restraint were the Eisenhower and Clinton administrations, during which the opposition party controlled Congress for the last six years of each administration. Conversely, the only long period of unusual fiscal expansion was the Kennedy/Johnson administration, which brought us both the Great Society and the Viet Nam War with the support of the same party in Congress.
One reason for this condition is that the prospect for a major war has been substantially higher under a unified government. American participation in every war in which the ground combat lasted more than a few days – from the War of 1812 to the current war in Iraq – was initiated by a unified government. One general reason is that each party in a divided government has the opportunity to block the most divisive measures proposed by the other party.
My own judgement is that our federal government may work better (less badly) when at least one house of Congress is controlled by a party other than the party of the president. American voters, in their unarticulated collective wisdom, have voted for a divided government for most of the past 50 years. Divided government is not the stuff of which legends are made, but the separation of powers is probably a better protection of our liberties when the presidency and the Congress are controlled by different parties.
I’ve suggested vote trading for divided government.