Supply-side economics at core of Gingrich plan

January 26, 2012

With the economy at the core of the presidential campaign, Newt Gingrich has received help from a group of relatively unknown economic thinkers — including two former advisers to Herman Cain — who share an unwavering faith in the school of thought known as “supply-side economics” that rose to prominence more than three decades ago.

Unlike Mitt Romney, who long ago surrounded himself with mainstream Republican economists, Gingrich has turned to more zealous advisers who believe the only true solution to healing the nation’s deficit is to spur economic growth through sharp tax cuts, reduced regulation and a tight rein on monetary policy, rather than focusing too keenly on spending cuts.

Peter Ferrara describes himself as Gingrich’s chief economic policy adviser and has won praise from Gingrich on the campaign trail. A lawyer and libertarian scholar who had long advocated privatizing Social Security — and once acknowledged taking payments from Jack Abramoff to write favorable op-ed pieces about the lobbyist’s clients — Ferrara said he talks to Gingrich almost daily.

“His thinking is extremely in tune with mine,” Ferrara said in an interview.

Other Gingrich advisers include a software entrepreneur in Texas and a Chicago-based economist for a research firm, both of whom advised the Cain campaign — famous for its “9-9-9” economic plan — before it collapsed late last year.

Gingrich surged to the front of the Republican pack, following his triumph in the South Carolina primary last week, in part on the strength of his appeal on economic issues. Voters who cited the economy as their top concern chose Gingrich over Romney, a shift from earlier contests.

The Gingrich campaign declined to discuss its economic team. But in separate interviews, the advisers said their arrangement is ad hoc, adding that Gingrich seeks advice but ultimately calls his own shots. “Speaker Gingrich does not need to be tutored on these issues,” said Paul Hoffmeister, the Chicago-based economist.

While Romney has cast himself as a problem-solving executive who created jobs in the private sector, Gingrich has heralded the country’s job growth during his time as House speaker and repeatedly portrayed himself as a Ronald Reagan-like figure whose aggressive policies would trigger a new era of growth in America.

“The Gingrich campaign is the strongest supply-side economic team in the Republican race right now, without question . . . We are real, pure blood supply-siders. I mean, hard-core supply-siders,” Hoffmeister said.

Romney and Gingrich share some core beliefs. Both candidates believe in lowering taxes. Both want to make permanent the George W. Bush tax cuts of 2001 and 2003. Both want to roll back regulations on businesses and financial firms.

But Gingrich has gone much further, proposing to eliminate taxes on capital gains and other investment income altogether. He also would lower the corporate tax rate to 12.5 percent — barely a third of the current level — and give individuals the choice to pay a flat tax rate of 15 percent, and create a “gold commission” aimed at keeping the dollar stable.

Gingrich has said his proposals harken to Reagan-era economic ideas and the conservative thinkers who pushed to bring them to the mainstream.

“I worked with Ronald Reagan to develop supply-side economics in the late ’70s along with Jack Kemp and Art Laffer and Jude Wanniski and others,” Gingrich said at a recent town hall. “We ended up passing it into law in ’81. At the time it was very bold. People called it ‘voodoo economics.’ It only had one great virtue: It worked.”

Laffer, a founding father of supply-side economics, offered a ringing endorsement of Gingrich last month, saying his policies would “create a boom of new investment and economic growth.”

But many conservative economists argue Gingrich’s proposals ignore current realities. An analysis by the independent Tax Policy Center found Gingrich’s plan would overwhelmingly favor rich Americans and increase the deficit by $850 billion in one year. “That’s just an astounding amount of money,” said Donald Marron, the Tax Policy Center’s director, who was an economist under Bush.

Alan Viard, a scholar at the conservative American Enterprise Institute, added: “The dramatic difference [between the proposals] is simply the staggering, staggering revenue loss under the Gingrich plan . . . The practical effect is there is no way to bring the deficit under control with that large of a tax cut.”

Gingrich advisers disagreed, arguing it would jump-start enough growth to shrink the deficit.

“It’s all about economic growth,” said Gingrich adviser Louis Woodhill, a Houston investor and member of the leadership council of the Club for Growth. “If you get the growth rate high enough, the federal deficit will melt away like an ice cream cone on a Houston sidewalk in July.”

Lanhee Chen, Romney’s policy director, said Gingrich has offered no credible explanation of how to pay for his huge proposed tax cuts. “His economic policies are kind of a hodgepodge of different ideas that lack a coherence and really demonstrate a lack of capacity to lead on day one,” Chen said.

Romney advisers said his plans are more realistic. He would maintain the 15 percent capital gains tax rate for households earning more than $200,000 and reduce corporate taxes to 25 percent, twice the rate proposed by Gingrich. He would grow the deficit and require big spending cuts, but nowhere near that of Gingrich’s plan, according to the Tax Policy Center analysis. Among his economic advisers are Columbia University business school dean Glenn Hubbard and Harvard professor Greg Mankiw, as well as former Missouri senator Jim Talent and former Minnesota representative Vin Weber.

Gingrich advisers dismiss Romney’s plans as weak.

“Romney is timid,” Ferrara, the chief Gingrich adviser said. “He’s nibbling around the edges rather than changing course.”

Staff writer Philip Rucker contributed to this report.

Brady Dennis is a national reporter for The Washington Post, focusing on food and drug issues.
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