Starve the Beast 2025

The Fiscal Policy the GOP is following has its roots back to Friedman, Reagan and others. Starve the Beast: Enact large tax cuts in order to bring about spending cuts.

The fiscal debate going on in Washington in 2025 may seem familiar because it is a playbook that the GOP has been following several decades now. The party, which for most of the 20th century was marked as being “fiscally conservative” instead has pushed for years for a policy that seems contrary to fiscal conservatism, since literally the policy is to first enact large tax cuts, raising the size of federal deficit. But the political strategy behind this plan is to follow what has been called “Starve the Beast,” since that term was coined in the late 1970s or 1980s, most famously by economist Milton Friedman, according to great research produced by Bruce Bartlett, a domestic policy advisor under George H.W. Bush.

Friedman — famously a libertarian who argued for limited government — and others argued that for years conservatives had been focusing “on the wrong thing” first (spending cuts), leading to them being “unwitting handmaidens of the big spenders” because the process was first to agree to increase government spending; then a deficit emerges. Then they “cooperate with the big spenders in getting taxes imposed.” Instead, Friedman concluded that “the only effective way to restrain government spending is by limiting government’s explicit tax revenue.”

The Starve the Beast strategy led to inevitably to the tax cutting frenzy of the 1980s under President Ronald Reagan, and has taken hold of the platform of the GOP since then, leading to large tax cuts passed under the terms of Presidents George W. Bush and Donald Trump, in his first term.

This leads to the 2025 fiscal debate. The tax cuts passed in the first Trump term will expire at the end of 2025, and a major platform Trump ran on in the 2024 was to extend the tax cuts. Doing so would lead to an estimated $4 trillion in cuts to federal tax revenue over the next ten years, depending on what is actually enacted.

Of course, a tax cut of this magnitude essentially “straves the beast”, in the term used in the literature — starves the federal government of revenue, leading to demands for spending cuts in order to not let the federal deficit (and debt) rise too much (If a policymaker cares about that). It is possible that some of the policymakers do not care about the deficit very much, but others do (creating some big disagreements in the GOP), but nevertheless extending the tax cuts will certainly creat some pressure to make spending cuts.

In fact, it may not be possible to pass the tax cuts without a balance of spending cuts, because the GOP does not have 60 votes in the Senate, meaning that the Democrats can filibuster any legislation that the GOP attempts to pass, unless the budget changes are passed under the reconciliation procedure. Under this procedure —which also brings into play the so-called “Byrd rule” — budget bills can pass with a simple majority of 51 votes, but only if the bills do not include extraneously elements not related to the budget.

The point of this discussion is to realize that the spending cuts being discussed now by the House and Senate budget and appropriation committees are deemed and described as necessary only because, first, a large tax cut is being proposed that will add to the long-run federal deficits and debt without the spending cuts. First starve the beast (cut taxes) and then argue that spending cuts are needed.

Of course, if the tax cuts were not enacted spending cuts of the magnitude proposed would not be necessary. The federal government is already running quite large annual deficits, estimated at $1.9 trillion in FY 2025, 6% of GDP. Much of that deficit is interest on the debt ($1 trillion in 2025), so the rest of the deficit is about $900 billion in FY2025. The accumulated federal debt has now nearly reached 100% of the GDP, and the deficits are projected to remain sustained for a long period of time. The reasons for this are for well-known structural reasons: high interest payments, aging of the baby boom generation, rising health spending spending, and other factors. However, the proposed extension of the tax cuts passed in the first Trump term would only increase these budget deficits.

There are of course other paths for fiscal policy. Starving the beast is an explicit strategy meant to reduce the size of government.

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