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Starving the Beast: Ronald Reagan and the Tax Cut Revolution
Since the Reagan Revolution of the early 1980s, Republicans have consistently championed tax cuts for individuals and businesses, regardless of whether the economy is booming or in recession or whether the federal budget is in surplus or deficit. In Starving the Beast , sociologist Monica Prasad uncovers the origins of the GOP’s relentless focus on tax cuts and shows how this is a uniquely American phenomenon.
Drawing on never-before seen archival documents, Prasad traces the history of the 1981 tax cut—the famous “supply side” tax cut, which became the cornerstone for the next several decades of Republican domestic economic policy. She demonstrates that the main impetus behind this tax cut was not business group pressure, racial animus, or a belief that tax cuts would pay for themselves.
Rather, the tax cut emerged because in America--unlike in the rest of the advanced industrial world—progressive policies are not embedded within a larger political economy that is favorable to business. Since the end of World War II, many European nations have combined strong social protections with policies to stimulate economic growth such as lower taxes on capital and less regulation on businesses than in the United State. Meanwhile, the United States emerged from World War II with high taxes on capital and some of the strongest regulations on business in the advanced industrial world. This adversarial political economy could not survive the economic crisis of the 1970s.
Starving the Beast suggests that taking inspiration from the European model of progressive policies embedded in market-promoting political economy could serve to build an American economy that works better for all.
Drawing on never-before seen archival documents, Prasad traces the history of the 1981 tax cut—the famous “supply side” tax cut, which became the cornerstone for the next several decades of Republican domestic economic policy. She demonstrates that the main impetus behind this tax cut was not business group pressure, racial animus, or a belief that tax cuts would pay for themselves.
Rather, the tax cut emerged because in America--unlike in the rest of the advanced industrial world—progressive policies are not embedded within a larger political economy that is favorable to business. Since the end of World War II, many European nations have combined strong social protections with policies to stimulate economic growth such as lower taxes on capital and less regulation on businesses than in the United State. Meanwhile, the United States emerged from World War II with high taxes on capital and some of the strongest regulations on business in the advanced industrial world. This adversarial political economy could not survive the economic crisis of the 1970s.
Starving the Beast suggests that taking inspiration from the European model of progressive policies embedded in market-promoting political economy could serve to build an American economy that works better for all.
256 pages, Paperback
Published December 5, 2018
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August 24, 2024
Some people are Freudians; some people are Marxists; some people are Kantians. I am a Prasadist. I base my work on the immortal science of Prasadist comparativist materialism, and I will never turn my back on that tradition.
Her Kapital is The Land of Too Much , a magisterial reimagining of the whole of American economic history from the post-Civil War surge in agricultural productivity through to the 2008 financial crisis. Starving the Beast is an effort to apply the theoretical framework built up there to a concrete case, specifically the Economic Recovery Tax Act of 1981 (aka Kemp-Roth aka the Reagan tax cuts). In particular, it's an effort to debunk the efforts of Hacker-Pierson, David Harvey, Kim Philips-Fein, Judith Stein, and others to paint the rise of neoliberalism, or at least fiscal neoliberalism, as driven by business interests.
The most basic counter to that case is that businesses opposed Kemp-Roth. Prasad documents very persuasively that leading business lobbies in the US opposed and feared the idea of across-the-board individual income tax cuts. They desperately wanted tax cuts on investments and capital income (cuts which, Prasad emphasizes, would bring the US into alignment with European peers, which long had much more pro-business tax regimes), but otherwise they wanted balanced budgets, and they correctly viewed Kemp-Roth as a distraction from both. It was only when Reagan was elected and it became clear that the individual cuts were non-negotiable that business reluctantly got on board in exchange for corporate cuts. Then most of those corporate cuts were rolled back in 1982 as a deficit reduction measure, the final fuck-you from Reagan to the business lobby.
So where did the tax cuts come from, if not business pressure? Not public opinion per se, because Prasad is too sophisticated to accept voters' responses to issue polls at face level. People wanted tax cuts — but they also wanted deficit reduction and spending increases. They're voters; they want everything, even the parts that contradict the other parts. Nor does she really buy the idea that racism fueled the cuts. If racism drove the appeal, why did Reagan conspicuously drop the most blatantly racist talking point of his 1976 campaign (his attacks on "welfare queens") when he ran, much more successfully, in 1980? Can you really argue that swapping in tax cuts for welfare queens is a movement toward playing off racial resentment?
Her basic explanation is that Republicans wanted to offer a coherent alternative to Democratic promises of spending expansion, and they needed an alternative that actually provided material benefits to voters. In the absence of massive wars botched by Democratic administrations like those that put Eisenhower and Nixon into office, tax cuts were basically the only game running. Tax cuts were, as Jude Wanniski put it, a "second Santa Claus," after Democrats' spending-offering Santa. Inflation made ambient dissatisfaction with the tax code bubble up (especially because the US relies so heavily on income rather than sales taxes), Reagan's team figured out how to use tax cuts to capitalize on it, and the rest is history. Business only really got on board when Reagan, to quote Dick Cheney, "proved that deficits don't matter" and a flood of foreign investment allowed US businesses to continue to obtain cheap loans without being crowded-out by government debt.
You can summarize it as "Republicans pitched tax cuts because tax cuts helped them win," but they helped Republicans win not because they were the most popular issue imaginable, but because they fit well into Republicans' existing image and didn't force Republicans to fight on an issue Democrats already owned (like boosting spending).
I had two broad misgivings, which are pretty minor in the scheme of how compelling the overall story is. First, Prasad is sometimes a bit loose in arguing that the tax cut era has undermined state capacity given the later observation that the cuts didn't crowd out private investment and thus deficits were pretty sustainable. The tax cuts only undermine state capacity if they actually starve the beast and force spending cuts. That's happened at the state level where balanced budget amendments constrain action, but not at the federal level. The cuts didn't prevent the massive expansions of food stamps and EITC and Medicare and Medicaid and numerous other government programs from 1980 to present. State capacity has certain suffered in some sense, especially when it comes to the federal government's ability to do anything more complicated that send out checks and pay medical bills, but I don't think you can look to the tax cuts for an explanation there.
Second, Prasad at times seems to gesture at a much more radical argument that the idea of "neoliberalism" in the American context is basically nonsense. She kills the idea pretty effectively in the tax context, but her chapter on "running to stay in place" notes that many regulatory, non-fiscal measures taken as evidence of a neoliberal turn in American policy consisted of the US landing where its peer countries had been for years. Repealing Glass-Steagall was not especially important because no other rich country demanded that investment and customer banking be separated like that. The US was simply catching up to everyone else in 1999 when it made that reform. So too the defeat of the Consumer Protection Agency dreamed up by Ralph Nader in 1978, which was the US rejecting a level of regulation that did not exist in any other rich country on Earth.
Denying the idea that something happened in the 1970s/1980s that changed the attitude toward regulation in the US and other countries seems to go too far. But I left this book thinking that the idea that conceiving of a "neoliberal era" in the US might not be useful or illuminating, and that we need to develop better frameworks for thinking about our recent past. That's a tall order but as a loyal Prasadist I believe she is up for it.
Her Kapital is The Land of Too Much , a magisterial reimagining of the whole of American economic history from the post-Civil War surge in agricultural productivity through to the 2008 financial crisis. Starving the Beast is an effort to apply the theoretical framework built up there to a concrete case, specifically the Economic Recovery Tax Act of 1981 (aka Kemp-Roth aka the Reagan tax cuts). In particular, it's an effort to debunk the efforts of Hacker-Pierson, David Harvey, Kim Philips-Fein, Judith Stein, and others to paint the rise of neoliberalism, or at least fiscal neoliberalism, as driven by business interests.
The most basic counter to that case is that businesses opposed Kemp-Roth. Prasad documents very persuasively that leading business lobbies in the US opposed and feared the idea of across-the-board individual income tax cuts. They desperately wanted tax cuts on investments and capital income (cuts which, Prasad emphasizes, would bring the US into alignment with European peers, which long had much more pro-business tax regimes), but otherwise they wanted balanced budgets, and they correctly viewed Kemp-Roth as a distraction from both. It was only when Reagan was elected and it became clear that the individual cuts were non-negotiable that business reluctantly got on board in exchange for corporate cuts. Then most of those corporate cuts were rolled back in 1982 as a deficit reduction measure, the final fuck-you from Reagan to the business lobby.
So where did the tax cuts come from, if not business pressure? Not public opinion per se, because Prasad is too sophisticated to accept voters' responses to issue polls at face level. People wanted tax cuts — but they also wanted deficit reduction and spending increases. They're voters; they want everything, even the parts that contradict the other parts. Nor does she really buy the idea that racism fueled the cuts. If racism drove the appeal, why did Reagan conspicuously drop the most blatantly racist talking point of his 1976 campaign (his attacks on "welfare queens") when he ran, much more successfully, in 1980? Can you really argue that swapping in tax cuts for welfare queens is a movement toward playing off racial resentment?
Her basic explanation is that Republicans wanted to offer a coherent alternative to Democratic promises of spending expansion, and they needed an alternative that actually provided material benefits to voters. In the absence of massive wars botched by Democratic administrations like those that put Eisenhower and Nixon into office, tax cuts were basically the only game running. Tax cuts were, as Jude Wanniski put it, a "second Santa Claus," after Democrats' spending-offering Santa. Inflation made ambient dissatisfaction with the tax code bubble up (especially because the US relies so heavily on income rather than sales taxes), Reagan's team figured out how to use tax cuts to capitalize on it, and the rest is history. Business only really got on board when Reagan, to quote Dick Cheney, "proved that deficits don't matter" and a flood of foreign investment allowed US businesses to continue to obtain cheap loans without being crowded-out by government debt.
You can summarize it as "Republicans pitched tax cuts because tax cuts helped them win," but they helped Republicans win not because they were the most popular issue imaginable, but because they fit well into Republicans' existing image and didn't force Republicans to fight on an issue Democrats already owned (like boosting spending).
I had two broad misgivings, which are pretty minor in the scheme of how compelling the overall story is. First, Prasad is sometimes a bit loose in arguing that the tax cut era has undermined state capacity given the later observation that the cuts didn't crowd out private investment and thus deficits were pretty sustainable. The tax cuts only undermine state capacity if they actually starve the beast and force spending cuts. That's happened at the state level where balanced budget amendments constrain action, but not at the federal level. The cuts didn't prevent the massive expansions of food stamps and EITC and Medicare and Medicaid and numerous other government programs from 1980 to present. State capacity has certain suffered in some sense, especially when it comes to the federal government's ability to do anything more complicated that send out checks and pay medical bills, but I don't think you can look to the tax cuts for an explanation there.
Second, Prasad at times seems to gesture at a much more radical argument that the idea of "neoliberalism" in the American context is basically nonsense. She kills the idea pretty effectively in the tax context, but her chapter on "running to stay in place" notes that many regulatory, non-fiscal measures taken as evidence of a neoliberal turn in American policy consisted of the US landing where its peer countries had been for years. Repealing Glass-Steagall was not especially important because no other rich country demanded that investment and customer banking be separated like that. The US was simply catching up to everyone else in 1999 when it made that reform. So too the defeat of the Consumer Protection Agency dreamed up by Ralph Nader in 1978, which was the US rejecting a level of regulation that did not exist in any other rich country on Earth.
Denying the idea that something happened in the 1970s/1980s that changed the attitude toward regulation in the US and other countries seems to go too far. But I left this book thinking that the idea that conceiving of a "neoliberal era" in the US might not be useful or illuminating, and that we need to develop better frameworks for thinking about our recent past. That's a tall order but as a loyal Prasadist I believe she is up for it.
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June 7, 2020"There are reasons for thinking that some kind of tax cuts would have happened in the 1970s ever without Jack Kemp and Ronald Reagan, because the diagnosis of bracket creep was widely accepted at the time. But it would probably not have been such a large cut, it therefore would not have created such a large deficit, and it therefore would not have taught Republicans the lesson that deficits are neither politically nor economically punished." The last being a central argument of the book: the Republicans were unable to mount a challenge to Democrats who secured the vote through welfare policies. Their previous platform of balancing the budget was no longer politically viable and it was the issue of lowering taxes as an antidote to stagflation that proved politically popular.
There is another claim that business did not push for tax cuts in Reagan era or, at least, they wanted other tax vehicles like depreciation schedules to be on par with other countries. This broadens to a discussion of business having to do more lobbying (for tax loopholes, among other things) that are already available through informal agreements in European contexts. This, in turn, broadens into a consideration that European countries are better able to support the welfare state by factoring in and accommodating business interests: "Whatever the causes [for corporatist bargains in Europe but not the US], the outcome is that the American polity does not do a good job of reducing poverty and it makes capitalists work very hard for policies that capitalists in other countries take for granted."
Potential solutions offered: progressive consumption tax, where luxury goods are taxed at a higher rate, "a trade-off of higher taxes and greater welfare spending in return for tort reform and lower litigation costs for business", fundamental rethinking of welfare which decouples welfare from work and prioritizes saving/renting over borrowing/buying, and the somewhat undertheorized claim to "develop institutions and policies that dampen the conflicts that the healthy functioning of democracy promotes" (i.e. focusing on short-term solutions realizable within election period over long-term issues like climate change), Republicans examining non-tax reasons why businesses have trouble and then developing platform around this.
There is another claim that business did not push for tax cuts in Reagan era or, at least, they wanted other tax vehicles like depreciation schedules to be on par with other countries. This broadens to a discussion of business having to do more lobbying (for tax loopholes, among other things) that are already available through informal agreements in European contexts. This, in turn, broadens into a consideration that European countries are better able to support the welfare state by factoring in and accommodating business interests: "Whatever the causes [for corporatist bargains in Europe but not the US], the outcome is that the American polity does not do a good job of reducing poverty and it makes capitalists work very hard for policies that capitalists in other countries take for granted."
Potential solutions offered: progressive consumption tax, where luxury goods are taxed at a higher rate, "a trade-off of higher taxes and greater welfare spending in return for tort reform and lower litigation costs for business", fundamental rethinking of welfare which decouples welfare from work and prioritizes saving/renting over borrowing/buying, and the somewhat undertheorized claim to "develop institutions and policies that dampen the conflicts that the healthy functioning of democracy promotes" (i.e. focusing on short-term solutions realizable within election period over long-term issues like climate change), Republicans examining non-tax reasons why businesses have trouble and then developing platform around this.
April 18, 2019
This book has several aims and succeeds at most of them.
First, Prasad talks about the history that led to Ronald Reagan, Jack Kemp, and other Republicans becoming focused on tax cuts, and how that focus became popular (or was made to be popular) with voters, finally becoming a driving issue of the Republican Party. This section is very well done and strongly supported with evidence. It was very interesting to read about how the party that once prided itself on balanced budgets became one that cut taxes first and worried about the budget second, if at all. Even more fascinating was how many politicians negotiated their own priorities with voter preferences.
After presenting the context, Prasad offers comparisons to an array of European welfare states, arguing that business interests were often treated less favorably in the U.S. She states that the lobbying efforts in America only served to bring policies back to near-parity with Europe, in many cases. There is also discussion of the regressive nature of certain taxes, and how inflation acts on them.
Frankly, I don't have the economics background to properly respond to the arguments in this book, but I was generally convinced - or at least intrigued - by them. Prasad's writing is clear and readable; she is obviously writing for an academic audience, but the book would be valuable reading for many. Highly recommended.
First, Prasad talks about the history that led to Ronald Reagan, Jack Kemp, and other Republicans becoming focused on tax cuts, and how that focus became popular (or was made to be popular) with voters, finally becoming a driving issue of the Republican Party. This section is very well done and strongly supported with evidence. It was very interesting to read about how the party that once prided itself on balanced budgets became one that cut taxes first and worried about the budget second, if at all. Even more fascinating was how many politicians negotiated their own priorities with voter preferences.
After presenting the context, Prasad offers comparisons to an array of European welfare states, arguing that business interests were often treated less favorably in the U.S. She states that the lobbying efforts in America only served to bring policies back to near-parity with Europe, in many cases. There is also discussion of the regressive nature of certain taxes, and how inflation acts on them.
Frankly, I don't have the economics background to properly respond to the arguments in this book, but I was generally convinced - or at least intrigued - by them. Prasad's writing is clear and readable; she is obviously writing for an academic audience, but the book would be valuable reading for many. Highly recommended.
May 12, 2019
Interesting perspective on the history of politics, taxes and welfare. Especially interesting and valuable was her discussion on how Europe created welfare policies, unlike the US, that were economically beneficial to all and also resulted in lower poverty rates. I also appreciated how these policies had an impact on creating cooperative rather than the adversarial efforts. For example, because of these policies, there was no need for adversarial legal cases to get benefits for medical costs and missed income because of asbestos problems. The ideas presented are valuable and important to consider if we are to generate comprehensive benefits by creating pervasive, reciprocal, selfish, selfless, synergistic interactions so everyone and everything benefits.
Displaying 1 - 4 of 4 reviews