- Cafe Hayek - http://cafehayek.com -

Jim Buchanan: Deficit Dove. Not

Tweet [1]

Commenting on Tyler’s excellent list of Jim Buchanan’s major achievements [2], “Bill” writes:

What you missed is Buchanan’s greatest legacy:

Creating Massive federal deficits based on a policy of tax cuts sufficient to create massive deficits, in order to “starve the beast”.

“Bill” then cites, and quotes from, a 2007 Independent Review article by Bruce Bartlett [3] to support the point that Jim Buchanan advocated the “starve the beast” scheme as a means of obliging government to reduce its spending.

“Bill’s” charge against Buchanan is seriously flawed.  I haven’t the time now to read Bruce Bartlett’s article, but in the quotation from it offered by “Bill” we are told (or so “Bill” reads Bruce as telling us) that Buchanan endorsed the “starve the beast” hypothesis in his 1980 book with Geoff Brennan, The Power to Tax [4].

Not true.

In a small section of that book devoted to Proposition 13 – a section entitled “Tax-Rate Limits: The Logic of Proposition 13″ – Brennan and Buchanan say (emphasis added):

If the potential taxpayer in some constitutional choice setting conceives of government in Leviathan terms, he will recognize that the imposition of maximum rates for any particular tax will result in a diversion of fiscal pressures toward those taxes that may not fall under the rate-limit constraint.  However, any rate limit on one tax from among the allowable set available to government must reduce the total revenue potential [sic] collectible by government from the whole set.  Whether or not the introduction of specific rate limits offers a desirable or efficient means of achieving the overall absolute constraint on revenues that may be desired is another issue.

A careless reader might interpret the penultimate sentence in this quotation as an endorsement of the alleged validity of the “starve the beast” hypothesis.  But in fact what Brennan and Buchanan say here is undeniably, almost trivially, true.  If it weren’t true, then all of the many opponents of Proposition 13 have been moaning pointlessly, for then Proposition 13 would not at all have reduced the potential tax take available to government in California – a government that, it’s germane to point out, hasn’t the power to monetize its debt.  (Uncle Sam, of course, does possess such power of monetization.)

And of course the final sentence in the above quotation hardly suggests that Brennan and Buchanan thoughtlessly endorsed any tax-rate limit simply because that limit might constrain government’s tax-take.

Buchanan and Brennan go on, in this brief section, to note that one potentially good reason for constitutional limits on taxing real property is that real properly is immobile and, thus, owners of real property are too likely, in the absence of such constitutional restraints, to suffer excessive uncertainty about the size of their tax burdens (and, as a result, will be hindered in their efforts to make “long-term decisions concerning investments in real assets”).  This justification of constitutionally imposed tax-rate limits on real property (to point out the obvious) has absolutely nothing to do with starving the beast.

Earlier in the book (p. 31) Geoff and Jim do mention that the political movement that was responsible for the success of Proposition 13 was aimed at limiting the size of government.  But surely this point is uncontroversial.  People who want to limit the size of government want to limit the reach and size of government’s greedy hand.  It hardly follows from Brennan’s and Buchanan’s recognition of this rather mundane reality that they (Brennan and Buchanan) saw Proposition 13 as being either an effective or a desirable means of starving the beast.

Even if Geoff and Jim do applaud Proposition 13 for its prowess at starving the beast, the context is very important here.  To advocate restraints on the taxing authority of a local or state government – a government without the power to monetize its debts – is not to advocate such restraints on the national government.

More generally, for “Bill” or anyone else to accuse Jim Buchanan, of all people, of being a force for major budget deficits is absurd.  Buchanan fought for a balanced-budget amendment.  Regardless of what you think of such a change in the U.S. Constitution, Buchanan fought for such an amendment and not for an amendment to constitutionally restrain tax rates or tax receipts.

Also, the lesson of Buchanan’s and Wagner’s 1977 book, Democracy in Deficit [5], (also mentioned by Bruce Bartlett in the passage quoted by “Bill” in his comment on Tyler’s post) runs full-force against “Bill’s” allegation.  The concern expressed in that 1977 book is precisely that, with de facto constraints on deficit spending removed, government will keep taxes too low and spending too high.  The ability of voters and politicians today to pass the bill for today’s government programs onto future generations will result in excess spending paid for largely by taxpayers in the future.

In short, for Buchanan, excess government spending was far more the product of too-easy resort to deficit financing rather than of government’s ability to tax today.  Correct or incorrect, wise or unwise – Buchanan’s preferred means of keeping government spending (and size) under control was to limit government’s ability to borrow, and not so much to limit government’s ability to tax.  Buchanan detested and feared government budget deficits.